Sailortobe

I joined a thread recently on a tax question, which led me into a dizzying spiral of sometimes contrary evidence, and a trip into the dark world of Tax Treaties.
I have failed to come to any definitive conclusion myself. Background: Does a UK pension invoke WEP? Before becoming a US citizen I qualified for a UK state pension. Emigrated to the US, worked long enough to qualify for Social Security and Medicare.

One school of thought, based on the "progressive nature" of US social security calculations, is that my SS benefit will be reduced, but by no more than 50%.

Another take on the situation is that a UK pension is not based on earnings, which is a critical factor in determining if WEP applies (SSA,gov website Q&A on the subject). I've also read on other sites that the UK pension is based on earnings. In a conversation with Pensions and Works (who, for those of you who followed my story of woe regarding FedEx and postal codes, finally received my application) the lady who is dealing with my application was helpfully vague when I suggested that a UK pension was not earnings related, she suggested that it MIGHT be construed as being so.

On another site like this one, I read that there is a similar ongoing legal case involving a Spanish state pension and WEP.

Just wanted to report in on my confusing findings. If anyone out there is drawing both SS and UK pension - can you shed some light on this.

Thanks.

Pulaski

There is another still-open thread, active as recently as a couple of months ago (or more recent) on this subject.

In short becoming a USC, SS eligible, does not eliminate your eligibility for a UK pension.

As I understand it, "additional years" purchased through Class 2 or Class 3 additional contributions are not relevant for WEP. Also years credited by virtue of being at school or university are, as I understand it not counted for WEP either. Furthermore, if you get to 30 years of "substantial contributions" to SS then WEP no longer applies. ...... I am about make a "catch up" Class 2 contribution, and I am on track to get a full (whatever that means ) British government pension and US Social Security.

Sailortobe

I know I can get both UK and US benefits; the water gets muddied for me with the conflicting interpretations of SSA rules regarding WEP (I don't have the 30 years that you do, which is your 'out'); my out would be if the pension is considered to be earnings related or not. If not, then WEP does not apply.

While I worked in Saudi Arabia for 5 years I made voluntary contributions, and for the three years that I lived in Spain (I did not contribute to either of those countries Social Security programs); I made catch up payments back in 2007/8 to qualify me for the UK pension, also served 9 years in the RN and can't remember if NI contributions were 1, 2, or 3 for that period. Which also raises the question of military pension. OMG

Any ideas as to how this all gets figured out, and by whom? Better still, any recommendations for a CPA that knows about International Tax Law?

All suggestions gratefully received.

nun

You need to figure this out yourself and tell SSA the right things.

1) Do you get just the basic state pension? Do you get any earnings related second pension like S2P or SERPS. This is important to know so ask HMRC. IMHO the basic state pension would not be included in any WEP calculations because it is NOT earnings related, but you need to make sure SSA understands that!!!!!

2) If your RN pension is a final salary pension or defined contribution pension it will be included in WEP.....however if you are not a US citizen it will not be taxed in the US.

Sailortobe

To the best of my knowledge I will be receiving the basic pension ie 113 pounds sterling per week. I believe the military pension is defined - so would be included in WEP. Need to check that out though. I am a US citizen, retaining British nationality ie I hold two passports.

Thanks for the input.

lansbury

If you will get a military pension it could well be that it will take you up to the maximum WEP. The State pension on top might not make any difference to the WEP. Worth using the online WEP calculator to find out.

dunroving

The most recent thread on the topic is this one, from Page 4:

http://britishexpats.com/forum/usa-5...curity-733297/

nun

Sounds like you would only include the military pension for WEP calculations.

If you are a US/UK dual citizen living in the US your UK military pension will only be taxed in the US. You need to Google "US Individual 2002" and read that form carefully.

Sailortobe

Thank you Nun and others for the advice. I'll take a look at the Individual 2002.

Sailortobe

Is it possible to have the UK pensions taxed in the UK - and not taxed in the US? Long shot - but I have to ask. My tax rate in the UK would be lower because I only have 3 pensions in the UK to consider; rather than adding those pensions to my income in the US -no?

nun

Basically, no. You are a US citizen and resident and taxed on your worldwide income. If you don't take advantage of the treaty the US will tax all your income sources according to unmodified IRS rules and might also require extra forms like 3250, 3250-A or 8621 to be filed.

If you elect the treaty you at least protect your UK pensions from excessive US tax complications.

Sailortobe

Thank you, Nun. Pity, though.