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Duel Citizen Working in the NHS - Pension Situation

Duel Citizen Working in the NHS - Pension Situation

Old May 29th 2023, 2:13 pm
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Default Duel Citizen Working in the NHS - Pension Situation

Hi
Our daughter, a dual citizen, recently returned to the UK. She has filed her US taxes while being there but has been a student so income is low,

She just secured a job in the NHS which will automatically contribute to the NHS pension scheme.

How will that affect her tax reporting and what are the tax implications on a pension of that nature. I know the US has rules on mutual funds/private pensions etc and im trying to guide her to avoid potential issues but i have no idea where a pension of this nature will fall.

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Old May 29th 2023, 5:20 pm
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Default Re: Duel Citizen Working in the NHS - Pension Situation

She should not have any issues so long as she is simply contributing to the NHS scheme and not taking any income from it. If it is a defined benefit scheme (usually retirement benefits linked to your final salary) then she does not need to declare it on an FBAR or Form 8938 (with your tax return) because technically there is no value to the plan until retirement, but it does not hurt to declare it with a $0 value because the IRS have never definitively stated that such plans do need to be reported. Reporting it with $0 value is just a belt and braces approach. On the other hand if it is a defined contribution plan with a value declared on regular valuation statements, usually annually, then she does need to report it when she meets the thresholds for FBAR and Form 8938. That’s it until she starts to take withdrawals.
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Old May 29th 2023, 5:48 pm
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Default Re: Duel Citizen Working in the NHS - Pension Situation

Originally Posted by Glasgow Girl
She should not have any issues so long as she is simply contributing to the NHS scheme and not taking any income from it. If it is a defined benefit scheme (usually retirement benefits linked to your final salary) then she does not need to declare it on an FBAR or Form 8938 (with your tax return) because technically there is no value to the plan until retirement.
Thanks i did some more research and found out that
it is a defined benefit scheme but is not done on final
salary. So hopefully it will still have a $0 value.

I think at some point she may renounce her US citizenship in future it seems so hard to navigate everything:Some of the main features of the new scheme are:
  • It is a type of defined benefit scheme which provides pension benefits based on a fixed formula.
  • It is a Career Average Revalued Earnings (CARE) scheme, rather than a final salary scheme where benefits are built up on the value of your pensionable earnings each year during your NHS career.
  • The pension build up rate is 1/54th of pensionable earnings in each year with no limit on the amount of pensionable membership which can be built up.
  • This 1/54th fraction is better than the current 1995 and 2008 Sections.
  • Each year’s pension earned will increase every year in value by the Consumer Price Index (CPI) plus 1.5 % per year.
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Old May 29th 2023, 6:53 pm
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Default Re: Duel Citizen Working in the NHS - Pension Situation

It’s a defined benefit scheme and as such she does not need to report it. If she has no other requirements to file an FBAR or Form 8938 then I would not report, but if she has to complete those forms anyway it does not hurt to include it with $0 value out of an abundance of caution.

However as you know she had to complete an IRS tax return while she remains a US citizen, report foreign bank accounts and investments, and avoid non U.S. mutual funds like the plague!
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Old May 30th 2023, 9:54 am
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Default Re: Duel Citizen Working in the NHS - Pension Situation

Employer contributions are required to be reported as currently US taxable income each year (IRS Section 402b). Alternatively, one can elect under the provisions of the US/UK treaty not to include contributions as US taxable income. The plan is a specified foreign financial asset and would be reported on Form 8938 if required to file. A defined benefit pension plan is not reported on an FBAR.
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Old May 30th 2023, 10:19 am
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Default Re: Duel Citizen Working in the NHS - Pension Situation

Originally Posted by Glasgow Girl
It’s a defined benefit scheme and as such she does not need to report it. If she has no other requirements to file an FBAR or Form 8938 then I would not report, but if she has to complete those forms anyway it does not hurt to include it with $0 value out of an abundance of caution.

However as you know she had to complete an IRS tax return while she remains a US citizen, report foreign bank accounts and investments, and avoid non U.S. mutual funds like the plague!
You're a wonderful BE member GG, always so willing to share your considerable knowledge with others. Thank you!
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Old May 30th 2023, 11:29 am
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Default Re: Duel Citizen Working in the NHS - Pension Situation

Thanks so much for the help. As an NHS nurse she’ll be under the threshold for a while I expect. I guess future questions will arise should she marry a non US citizen, or hold joint accounts, it seems that that could be hard to navigate, but one hurdle at a time I guess.
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Old May 30th 2023, 2:25 pm
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Default Re: Duel Citizen Working in the NHS - Pension Situation

Reporting on the FBAR and Form 8938 is fairly easy and not really time consuming after you have done it once. All you typically need is the maximum account value, the exchange rate, account details and the address of the financial institution. FBAR can be filed online (very easy) and Form 8938 can be done online with the tax return again very easy, so she should not worry about those going forward. Reporting non U.S. mutual funds however is a total nightmare. She hopefully is claiming the Foreign Earned Income Exclusion on her tax return which excludes about $120,000 of foreign earnings from IRS taxation (only because she lives overseas). But, yes, one step at a time, so long as she files a tax return and reports all foreign accounts she should have no concerns.
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Old May 30th 2023, 7:37 pm
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Default Re: Duel Citizen Working in the NHS - Pension Situation

Originally Posted by spouse of scouse
You're a wonderful BE member GG, always so willing to share your considerable knowledge with others. Thank you!
I must second that...her concise, informed replies are always so clear, helpful and relevant.

I always marvel at your willingness GG to take the time required to be so precise.
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