annetteangela

Thanks, nun, for the advice about taking the pension as a series of payments with each being 25% tax free. Very useful advice.

nun

That's a good argument for the pension an indexed linked pension is nice to have.

I would look at your options for the personal pension. Simply buying an annuity
might not be your only option. Do you know how your personal pension is invested now?

Have you checked with a professional tax/estate planner about the trust. Your situation as a US tax payer might be relevant.

theOAP

Correct me if I'm wrong, but I don't believe you've mentioned whether or not you have been informed of your pension providers stance on the new rules, and what actions you may be allowed.

My reason for raising this is I also have a final salary, defined benefit, index-linked pension. Although I am in the draw down stages, I still receive the semi-annual pensions information brochure from the pension scheme; the same one that goes to all current employees and past members of the scheme. That particular scheme has issued very strict rules for those about to take a pension, and it basically says new pensioners may only elect a full "max pension", or a "lump sum" and reduced pension. The ability to take partial payments with 25% lump sum segments does not exist within that scheme. It also does not allow a full withdrawal from the scheme in accord with the new rules. For those with less than (2 or 3 years? I'm not certain of the numbers) the possibility still exists for the funds to be paid and withdrawal from the scheme allowed, but for longer term members, no.

Speaking as someone with such a final salary index-linked pension, I don't think you'll find a better deal for your funds with equal or less risk.

If you've yet to do so, check with your provider of the final salary pension for their stance on the new rules and what options you'll have. For a SIPP, then the new rules do seem to apply.

lansbury

I didn't explain the advice I received very well. Anything that isn't the regular monthly, weekly or whatever period the pension is paid is a one off payment. If you split the lump sum it becomes x number of one off payments.

Our last pension with a lump sum paid out in August. Our CPA said however you spin it a lump sum payment is part of your pension income and therefore taxable. As it was only a very small amount it wasn't worth the hassle of dealing with the IRS to dispute it.

I have no idea who is right and who isn't. Just glad the biggest lump sum was my government service pension which was exempt.

annetteangela

I have been talking about two separate pensions, and then there's also the state pension that I'll get when I'm 65 (is that tax free here in the US?). The company scheme is great but I was only there five years, so it's not a huge amount. I think with that one my best bet is to take the higher pension, after taking into consideration what everyone has said. I don't want to have to start arguing my corner with the IRS. Much easier to have the income, which is index-linked, and then no further worries with what to do about a lump sum (they are my only two options, btw - to take a reduced pension and "tax free cash sum" or to take a higher pension with no lump sum).
The PP is invested across a wide range of funds with an insurance company that allows me to switch funds and select from a wide range of investment houses. The death benefit (the value of the fund at the date of death) is written in trust and all my kids would have to do would be to show a death certificate and it would be paid out. It would never come anywhere near the US, and because it's in trust it doesn't form part of my estate, so I think that part is taken care of. If I take the pension (I'm not sure about the new rules - will I still have to do something with it by 75?) then obviously it becomes part of my estate. I think I would rather leave it invested and use the new rules to take an income on an ad hoc basis, but it seems I need to look into this further to see how the IRS would view such payments. Lansbury says any payments are fully taxable and nun says 25% of each payment is tax free. Perhaps it depends which side of bed the IRS agent got out of bed that morning? I wish these rules could be more straightforward...

lansbury

The UK State pension you don't pay tax in the UK, you pay tax on it in the US.

With your 2 private pension and the State pension I think you will need to submit the claim to have them all exempted from UK tax. I'm guessing the 3 combined would put you over the UK personal allowance.

annetteangela

Yes, but I'm only going to take the company pension initially. That falls within the personal allowance, so hopefully there will be no UK tax and I'll just add it on my US return for 2016. I have another five years before I get the state pension and the personal pension...well, I have a lot more thinking to do before I touch that.

lansbury

I would like to correct that by saying that is the advice I got from my tax professional. I have no idea if he or nun is correct, just for the sum involved it wasn't worth my while to find out.

IMHO this is one of those things where people shouldn't take at face value anything posted here. But use the information given to have a conversation with a tax professional about their personal circumstances.

annetteangela

Well, I'm grateful for everyone's comments and sharing of their experiences. Obviously, no-one is going be held to any off-the-cuff advice they give here, but it's very useful to hear what different people think and have been told. It never seems to be clear cut, and tax professionals will always err on the side of caution, so it's better to be already armed with some knowledge. I think I will try the Inland Revenue next week and see if they can shed any light on all this. If they do, I'll let you know!

nun

As a US resident there is no question about your UK tax status....your UK state pension and all private pensions are free of UK tax under the terms of the US/UK tax treaty. If you file a US-Individual-2002 you can claim that exemption, HMRC will adjust your tax code to NT (if it isn't already) and your pensions will be paid gross to you in the US. That bit is easy.

Your UK state pension will be fully taxable in the US. You other UK pensions will also be taxable in the US, the only question is whether you can claim the UK 25% tax free amount on your US taxes.

nun

Under 17.1.b any tax free portion of pension income remains tax free in both the US and the UK. A lump sum is specifically not part of pension income and it is taxed differently from pension income.

kodokan

As an aside, have your UK accounts - pensions, any bank ones - tipped into FBAR/ FATCA reporting territory, and if so have you been filing the annual paperwork?

It's certainly a complicated time to be making pension decisions, since the IRS didn't even have clear guidelines on the old regime, let alone the new one coming in. Good luck with it!

annetteangela

Thanks. I think I just need to hand all the details to my accountant and hopefully he will know what to do. It has been relatively straightforward up to now but as I start to receive pensions I can see that I'll have to do more research as they come up.

Samxboy

I did speak to a financial advisor and although his principal sales pitch was a QROPS product stated very catergorically that in all his years of managing UK pensions for US residents, no one had ever paid tax on the 25% lump sum, irrespective of UK or offshore pension scheme. He of course quoted 17.1.b and said it was very clear. Also I shouldn't listen to internet forums. He also referred to letters from George Hayduk, a noted tax attorney who has stated his position.
Speaking to another one next week......

theOAP

Carry on,.....we haven't heard about George since Sept. 2014.

http://britishexpats.com/forum/usa-5...-737360/page6/

Posts #76 and #80.....and on.