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lump sum from defunct pension fund

lump sum from defunct pension fund

Old Aug 17th 2011, 6:38 pm
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Default lump sum from defunct pension fund

Hi , ive had a search and theres some interesting stuff on this subject but i cant quite find the exact answer to my question so thought id start a new thread...
I'm a UK citizen who is a green card holder here in the US , i worked for a company in the UK who after i left were bought out by another company, as a result of that they are now winding down the pension and retirement scheme that i was a member of and with which i had just left my money in as i hadnt joined another pension scheme, they are going to be paying me out a lump sum payment that is the contributions that i paid in over the years of working there.
The chap at the pension company informed me that they will be paying HM Revenue and Customs the taxes they are due on the lump sum before they send me the rest out, my question is, how does that affect me tax wise in the US, do i declare it on my tax return but declare it as non-taxable income as its already been taxed in the UK? or do i not declare it at all? or how does that work?
just for reference , i am not of retirement age nor anywhere near it so this would not be considered a tax free lump sum as i would get if i was retiring.

thanks in advance for all your help
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Old Aug 17th 2011, 11:32 pm
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Default Re: lump sum from defunct pension fund

Originally Posted by paulpur View Post
Hi , ive had a search and theres some interesting stuff on this subject but i cant quite find the exact answer to my question so thought id start a new thread...
I'm a UK citizen who is a green card holder here in the US , i worked for a company in the UK who after i left were bought out by another company, as a result of that they are now winding down the pension and retirement scheme that i was a member of and with which i had just left my money in as i hadnt joined another pension scheme, they are going to be paying me out a lump sum payment that is the contributions that i paid in over the years of working there.
The chap at the pension company informed me that they will be paying HM Revenue and Customs the taxes they are due on the lump sum before they send me the rest out, my question is, how does that affect me tax wise in the US, do i declare it on my tax return but declare it as non-taxable income as its already been taxed in the UK? or do i not declare it at all? or how does that work?
just for reference , i am not of retirement age nor anywhere near it so this would not be considered a tax free lump sum as i would get if i was retiring.

thanks in advance for all your help
If you already paid UK taxes on it then you will not pay again due to the US/UK tax treaty
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Old Aug 18th 2011, 1:47 pm
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Default Re: lump sum from defunct pension fund

Originally Posted by UKzeus View Post
If you already paid UK taxes on it then you will not pay again due to the US/UK tax treaty
Would it not depend on the rate at which it was taxed in the UK? certainly under the tax treaty, you don't "pay the same tax twice" so to speak. However, if it was taxed at 10% in the UK, and the US tax rate for the individual was 30%, I think the IRS would levy the remaining 20%.

Generally, I think US income tax is lower than UK, but in these situations, often the lowest rate of tax is taken out. I know when I have received consultancy payments here in the UK, the tax taken out is at the lowest rate and when I declare the income, and the tax I already paid, I end up still owing a little more tax.
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Old Aug 18th 2011, 1:53 pm
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Default Re: lump sum from defunct pension fund

thank you for your replies

i think i remember reading somewhere that it will be taxed at 20% in the UK , but am not entirely sure so will just need to wait and see, i will also request a statement from the pension company showing the amount total, the amount of tax paid and the amount remaining that was paid to me...hopefully that will help me when it comes to tax time
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Old Aug 19th 2011, 1:10 am
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Default Re: lump sum from defunct pension fund

Even if it's covered by a tax treaty you will still have to include it in your US tax return (if it meets the US definition of "income").

You can claim a foreign tax credit on your federal return, but unless you're in a state without income tax, don't forget the state income tax. Most states do not allow a credit for foreign taxes.
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Old Aug 19th 2011, 12:18 pm
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Default Re: lump sum from defunct pension fund

thanks JAJ , a wealth of information as usual , i live in Florida so no income tax here , but i will definately include it in my tax return and claim it with foreign tax credit
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