whitebear

To my horror, HMRC have just told me I was a government employee working as a College Lecturer, and therefore my Teacher's Pension will always be taxed in the UK unless i become an American Citizen. I've been living in the USA for a year and was just expecting all my tax back.

Are there any retirees out there that have first hand experience of this? Teacher's Pensions told me they are not a government pension, so now I'm in a battle I expect to lose with the Inland Revenue.

Also sucks that I have paid taxes to the IRS as well.

nun

The Government, or not, status of the pension will determine whether there will be any UK tax witholding. Obviously you realize that. I can't offer advice about the status of your pension, but any tax that you pay in the UK can be used to offset US tax. You can also file a 1040x to reclaim any excess US tax paid.

whitebear

Thanks Nun, the 1040x information saves some looking up.

Jerseygirl

There was a thread a year or more ago on this subject. A member is an ex UK local government worker...he receives a pension and it is taxed in the UK.

whitebear

Yes, that member would definitely qualify as a government worker. However, I believe that a College of Further Education is effectively a Private College, so I'm hoping to find someone who has had this battle and won.

lansbury

You need to look very carefully at this. Don't know where you are, but because of the way Oregon assesses taxable income, my UK Government Service Pension didn't have state income tax deducted from it. Of course it was also excempt from Federal tax. When I became a citizen and my pension was only taxable in the US, I pay more tax on it, then when it was only taxed in the UK.

Of course your state might not have income tax making things much simpler.

nun

Is the pension through USS or TPS, or something else. Initial Googling tells me the following:

USS is a funded scheme (ie employees an employer fund the scheme through contributions) and is private sector

TPS is not funded and is a Government backed higher education pension scheme

whitebear

Mine is TPS, but the rules state that Independent Schools and Private Colleges do not count as government employment. So, everything seems to hinge on whether my employer was a public or private College. My employer says private, and they should know, so let battle commence.

nun

Your employer maybe have been a private college, but the TPS is a Government public service pension plan that many teachers at fee paying schools have access to. I remember reading something about such teachers getting worked up about Government "reforms" that would have locked them out of the TPS and required them to go over to private defined contribution plans.

So IMHO HMRC is correct; TSP is a public service pension plan and right now you are fully taxable on it in the UK. In any case I'm not sure it's a battle worth having unless you have a big difference between UK and US tax due.

sinbad2222

Don't complain. I am in same situation with UK Civil Service Pension taxed in UK. You will pay a much lower total tax if you pay some tax in UK because of the large UK personal allowance. Remember you cannot be taxed twice so the IRS cannot also tax you on it. The same applies for income from a let UK property - HMRC will insist on taxing that. I believe that if you become a US citizen then your UK pension will be paid free of tax and you will have to pay US tax at US rates on the pension. A very good reason never to become a US citizen as well as a possible distaste for swearing allegiance to a foreign country.

whitebear

I did the sums on allowances in the USA and came to the conclusion my tax would have been around 200 dollars a month, as against 205 GBP. I don't have assets in the UK, so it was pretty straight forward. I am to be about 116 USD short per month on original plan. Still, it is what it is, can't change it now. It's the health insurance that bites so hard. Amounts to at least 25% of my taxed income.

lansbury

While the UK personal allowance is larger, there are many more items you can claim as a deduction in the US. It is not as simple as saying one is better than the other. It is entirely on an individual basis which one can work out better than the other. Each person should work out for themselves which may be the option with the lower tax, if that is one of the considerations before taking US citizenship.

I am better off having my UK government pension taxed in the US, even with having to pay state income tax on it. In the UK I ended up paying about 16% of my total pension in tax, after deductions in the US last year I paid 14%.

whitebear

So did you take US Citizenship?

lansbury

Yes in December 2009.

I decided however it worked out in future years, the difference in tax between one country and the other, probably wasn't going to be a huge amount. In 2010, 2011 I paid less tax in the US, than I would have paid in the UK. Paying tax in the UK, while living in the US, and not planning to return to the UK, didn't make sense. Why pay tax in a country where you are not going to get any benefit from it. I had to pay tax, so preferred to pay tax where I lived.

nun

Pensions, Government or otherwise, have a set of fairly complex taxation rules set up in the US/UK tax treaty. In some circumstances they can be taxable in one country, or in both. It all depends on residency, citizenship and the exact source of the pension. If it is taxable in both the US and the UK you can always take credit for tax paid to one country in the other.....this is to eliminate double taxation.