dougaldog

I have had my green card for 3 years, and, being married to US citizen (herself an erstwhile Brit), I am now eligible to apply for citizenship. We are both approaching 70. My wife suggests I should go ahead, as it would simplify matters in estate handling should she predecease me – she owns two properties here, while I have one still in my name in the UK. As I have a UK military pension in addition to my state pension, some of my colleagues have suggested that dual citizenship at this stage may create more problems in the inheritance and taxation fields than benefits. Do any of the legal experts have any views, or has anyone else been along this road?

ian-mstm

You married a smart woman! Your mates, however... well...

Ian

JAJ

Did they tell you what problems these might be? Are you paying US tax on your military pension already?

http://britishexpats.com/wiki/Pros_a...US_Citizenship

dougaldog

Thanks JAJ. I understand that under the current US-UK double taxation agreement, certain income - in particular state pensions (including that ex UK) are taxed only in the US - whether one is a resident or citizen. Pensions in respect of 'services rendered to the state' (eg military/civil service pensions), however, are taxable only in the UK if the recipient is simply a US resident, but taxable in the US if the recipient is resident and a national (Art 19 para 2b). Some of the advice I have had so far is that after looking at 'world income' and taking the various tax refunds it will all come out even - others are not so sure. And the 'not so sure' ones also point out that were the green card to lapse on a return to UK (certainly not an issue at present), all would go back to square one, whereas once a citizen in the firm hands of the IRS, that's it forevermore - wherever you go! Surely someone has been here before??

lansbury

I have a UK police pension treated the same way as your military pension. I am now a US citizen and that pension is taxed only in the US, and not the UK as it was before.

What you lose is the personal allowance in the UK before you start paying tax on your income. It is difficult to say if you will come out even or be better or worse off being taxed in the US. The reason is it isn't always possible to predict what your US tax deductions might be. In practical terms can you find enough tax deductions in the US to offset the loss of the personal allowance. I think in fact so far I have been better off being taxed in the US, but there are other non monetary benefits which out weight possibly paying slightly more tax. Not the least of which is the right to come and go as you please, and to have no restriction on how long you can be out of the US.

dougaldog

A helpful input, Lansbury - many thanks for taking the time. I shall be banging the heads of UK tax helper and US tax helper together to try and get them to do some sums - it's all complicated further by my wife and I doing a joint filing over here, whereas my UK filing is currently my own.

lansbury

Do not where you are, but don't forget to factor in State income tax if that applies as well. My wife and I file jointly as well.

meauxna

dougaldog, as lansbury knows, my DH also has a gov't pension under this treaty. Isn't it more accurate, lansbury, to say that the money must be *reported* now that you are a US citizen?

As a PR, you had the option to not report the income to the IRS (extremely unusual). It was taxed in the UK.

It can still be left and taxed in the UK if the rates work out better for the individual, but once a USC, the income must be reported (and then backed out due to the other treaty, so that you are not taxed twice).

Did I sum it up correctly?
doug, also if it isn't clear, my DH has naturalized.

lansbury

No this is the requirement for taxing a UK government service pension.

UK citizen living in the US - can only be taxed in the UK (my CPA didn't even report it.)

Dual UK/US citizen living in the US - can only be taxed in the US. You need to inform HMRC that you are a US citizen and they exempt your pension from UK tax.

The recipient doesn't get to choose where it is taxed. Therefore if you want to become a US citizen and live in the US, you need to understand as far as possible the financial implication of the change of where income tax is paid.

meauxna

Got it.