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Hello - looking for long term in US advice

Hello - looking for long term in US advice

Old Apr 13th 2014, 3:08 am
  #31  
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Default Re: Hello - looking for long term in US advice

Originally Posted by lansbury View Post
Not sure it really is a loophole. I get a UK pension on the 6th of each month. That pension is worth in dollars the exchange rate on that day. The IRS don't know if I leave that money in the UK, and spend it there, or bring it across to my US bank. Or when I do either. If I was paid in the US tax would be deducted before payment on that day. Certainly hope that the IRS don't see it as a loophole to be closed, I have always been able to bring money over at a rate higher than the IRS average rate.
Theoretically - you are taxed on the pension based on the average rates, but then if you achieve a different exchange rate by either forward contracts you may be generating additional taxable income.

In reality, I doubt it's an enforcement priority for the IRS, at least not for everyday individual taxpayers.

Unclear how all this relates to the original question on the thread.
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Old Apr 13th 2014, 5:39 pm
  #32  
 
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Default Re: Hello - looking for long term in US advice

Originally Posted by MMcD View Post


And I guess I'm saying - if we are awarded in pounds, on the same date, at the same time of day - an equal UK pension amount ... I too, as a matter of fairness, should be able to convert it's value for tax purposes, using the same IRS rate as someone who has instructed the Pension Service to transmit their pension to a UK bank.
I understand what you are saying but in the case of the person receiving their pension in the US, there is no conversion to make to obtain the dollar value. On the other hand you get the benefit of an exchange rate that, from what has been posted on BE, is much near the spot rate than an individual can obtain. So if I moved my pension to the US on the day it was received, my guess is someone having it paid directly into their US bank on that day would get more than me. Swings and roundabouts.
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Old Apr 14th 2014, 3:40 am
  #33  
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Default Re: Hello - looking for long term in US advice

Thanks Penguin - they are both pretty old with a couple of ongoing conditions so I hate to think why the premiums might be - but Obamacare will sort it all out right?;-)
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Old Apr 14th 2014, 3:48 am
  #34  
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Default Re: Hello - looking for long term in US advice

Thanks for the chit chat on FX rates - I was actually happy to hear the ease at which you could get your UK pension into the US. Do you have to do anything to get the UK pension paid gross? (before paying whatever US tax on it?) Is this treatment available for company based pensions (rather than a state pension?)
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Old Apr 14th 2014, 5:41 am
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Default Re: Hello - looking for long term in US advice

Originally Posted by Macca78 View Post
Thanks for the chit chat on FX rates - I was actually happy to hear the ease at which you could get your UK pension into the US. Do you have to do anything to get the UK pension paid gross? (before paying whatever US tax on it?) Is this treatment available for company based pensions (rather than a state pension?)
My wife and I both have duel US/UK citizenship. She gets a university and UK State pension which do not exceed her tax allowance, so we didn't bother claiming exception from UK tax for her. My police and UK State pension well exceeded the tax allowance so I claimed exemption from UK tax. Couple of forms to fill out which are sent to the IRS with a fee and they send one of those forms to HMRC.

Your OP gives the impression it might be some while before you claim your pension so things might change.
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Old Apr 14th 2014, 1:28 pm
  #36  
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Default Re: Hello - looking for long term in US advice

Yes Lansbury - that is the case - just trying to look ahead. I was thinking about switching from my UK work pension to my US equivalent. I think my UK matched contributions are much better so wanted to keep it - but didn't want that to come back and bite me later.

Your point about things change is perhaps extra relevant as I'm 'Scottish-British' so who knows where we will be in a few years;-)

Thanks
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Old Apr 14th 2014, 2:35 pm
  #37  
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Default Re: Hello - looking for long term in US advice

My guess about taxing UK income is that there are two taxable events occurring. Firstly, when you receive the money, the IRS allows you to use any reasonable exchange rate to calculate the income in dollars. However, this number becomes the cost basis for the second potentially taxable event, when you actually convert the money into dollars. If the exchange rate is better, this is a gain, if worse, this is a loss. I don't know if foreign exchange gains are taxed at income or capital gain rates.

Then again, I doubt the IRS worry much about that second event, as least for individual taxes.
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Old Apr 14th 2014, 5:03 pm
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Default Re: Hello - looking for long term in US advice

Originally Posted by Owen778 View Post
My guess about taxing UK income is that there are two taxable events occurring. Firstly, when you receive the money, the IRS allows you to use any reasonable exchange rate to calculate the income in dollars. However, this number becomes the cost basis for the second potentially taxable event, when you actually convert the money into dollars. If the exchange rate is better, this is a gain, if worse, this is a loss. I don't know if foreign exchange gains are taxed at income or capital gain rates.

Then again, I doubt the IRS worry much about that second event, as least for individual taxes.
The IRS clearly state that the value of the foreign transaction is the exchange rate on the day, or for regular payments the average yearly rate. If that is what the IRS state why try and make it more complicated?
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Old Apr 14th 2014, 5:38 pm
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Default Re: Hello - looking for long term in US advice

Originally Posted by lansbury View Post
The IRS clearly state that the value of the foreign transaction is the exchange rate on the day, or for regular payments the average yearly rate. If that is what the IRS state why try and make it more complicated?
Sure. But how does that IRS statement contradict what I said? There are two transactions involved: first you receive the money, and later you transfer it into dollars.
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Old Apr 14th 2014, 6:45 pm
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Default Re: Hello - looking for long term in US advice

Originally Posted by Owen778 View Post
Sure. But how does that IRS statement contradict what I said? There are two transactions involved: first you receive the money, and later you transfer it into dollars.
because the IRS instructions says nothing about when the money is actually changed into dollars.
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Old Apr 14th 2014, 7:17 pm
  #41  
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Default Re: Hello - looking for long term in US advice

Hey Macca78...there you are!
Wondered whether you'd return (while we were pulling the rug out from under you by hijacking your thread...sorry )

Originally Posted by Macca78 View Post
I'm looking for advice on how to access a UK company pension when living in US or things to do now to ease the process later it would be great if someone could point me to any existing links etc.
Unless I'm mistaken - you can't "access a UK company pension when living in US" before the age at which you're allowed to start receiving benefits. The pension itself must remain in the UK. The US will not allow a UK work pension (or any kind of pension or annuity) to be transferred or "rolled over" into any kind of US pension scheme....such as an IRA etc. (Not sure if that's what you were getting at, but thought it worth pointing out just in case )

As you mention in a subsequent post - by the time you're ready to draw benefits a lot will probably have changed - but here's a link to some current info which may be relevant to some of your concerns:

http://www.hmrc.gov.uk/incometax/cod...s-benefits.htm

As Lansbury has already mentioned - if you remain in States and don't want any UK tax withdrawn from your payments at source, under PAYE, because you'll be paying US tax instead on this income - you petition for a change of Tax Code (I think the PAYE code is P60 - and that's the one you'll want to change).
It takes several weeks and is probably best to try to set up this change some months before you expect to receive any payments from any of your pension sources - so that the companies involved know of the change before they use the "wrong" code and deduct UK tax.

Originally Posted by Macca78 View Post
Thanks for the chit chat on FX rates - I was actually happy to hear the ease at which you could get your UK pension into the US. Do you have to do anything to get the UK pension paid gross? (before paying whatever US tax on it?) Is this treatment available for company based pensions (rather than a state pension?)
I think my reply above answers these questions (?)

Originally Posted by Macca78 View Post
Yes Lansbury - that is the case - just trying to look ahead. I was thinking about switching from my UK work pension to my US equivalent. I think my UK matched contributions are much better so wanted to keep it - but didn't want that to come back and bite me later.
What I highlighted in red is what I mentioned at beginning of this reply...it led me to think you may (?) misunderstand what is and isn't allowed. And I wanted to be sure that wasn't the case.
As far as I understand - the only contribution you can continue to make now to your existing UK pensions - relates to the State Pension. Unless rules have recently changed - you can continue making NI contributions. Search on BE for many posts about possible advantages to doing just that.

Come back with more questions - if you have them...someone should know the answer.....
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Old Apr 14th 2014, 8:00 pm
  #42  
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Default Re: Hello - looking for long term in US advice

Originally Posted by lansbury View Post
because the IRS instructions says nothing about when the money is actually changed into dollars.
I did some more investigating, which eventually led me to page 30 of IRS publication 525.

http://www.irs.gov/pub/irs-pdf/p525.pdf

This is the relevant section:
Foreign currency transactions.
If you have gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.
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Old Apr 14th 2014, 8:20 pm
  #43  
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Default Re: Hello - looking for long term in US advice

Originally Posted by lansbury View Post
because the IRS instructions says nothing about when the money is actually changed into dollars.
Surely you can only apply an exchange rate when there has been an exchange? If you did a simple transfer of the GBP receipts into USD in their entirety and at a fixed time after receiving each credit, e.g. next day, then the average rate would make sense, but once you start accumulating GBP receipts and trying to time the conversion into USD at a better rate, then I suspect you have foregone the option to use the average rate for "regular" receipts.
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Old Apr 14th 2014, 8:52 pm
  #44  
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Default Re: Hello - looking for long term in US advice

MMcD

Thanks for that. When I mentioned switching it wasn't to try and bring my UK pot over to the US - but more to start contributing to a new US one.

I think though my UK contribution rates are better (eg it's 5% of salary rather than US one being 3%) so would prefer to keep contributing to my UK one.

Thanks again though for your answer
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Old Apr 14th 2014, 10:03 pm
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Default Re: Hello - looking for long term in US advice

Originally Posted by Pulaski View Post
Surely you can only apply an exchange rate when there has been an exchange? If you did a simple transfer of the GBP receipts into USD in their entirety and at a fixed time after receiving each credit, e.g. next day, then the average rate would make sense, but once you start accumulating GBP receipts and trying to time the conversion into USD at a better rate, then I suspect you have foregone the option to use the average rate for "regular" receipts.

You can suspect but how do you calculate it. If I only had to pay US tax if and when the money was changed into dollars that would be easy, and I would agree the rate I got would be the rate to use for taxes. But I have to pay on my income regardless of which currency it is in. If you can only apply an exchange rate if there has been an exchange, what rate do you apply to money that hasn't been exchanged but on which tax has to be paid, zero?

In 2014 I will exchange about £30k for dollars. Some of that was received in 2013, and at the end of 2014 there will still be a chunk of my 2014 UK pension in the UK. I guess I could work out the average rate I got for the year and apply that to the 2014 pensions, then go back and see if what I got was more or less than the 2013 rate, and work out any gains or losses on that part of the money. But it is a lot easier to just use the IRS average rate and for practical purposes I doubt it makes a difference of more than a couple of hundred dollars or so in tax.
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