vulcan

While it still makes no sense to me to ask HMRC about US taxation

This, of course, is an example of why you should ask the IRS about US taxation, not HMRC.


I didn't suggest he ask the UK tax office re US tax. I suggested he speak to a UK tax officer re what his UK tax liability.............or maybe you deliberately misunderstood that.

To understand what his US tax liability is I suggested he read article 17 of the US/UK tax treaty.

Owen778

Then, you are confused, I'm afraid. No-one other than you mentioned his UK tax liability, other than to state it will be zero.

And no, Article 17, paragraph 2 is superseded for both US citizens and US residents by the saving clause, Article 1, paragraph 4, just like Nun and I have both told you.

nun

Yes, this is true. Only a few articles actually take effect for the US citizen or resident because of the saving clause of Article 1.4.

nun

I agree with this, but Article 1.4 and domestic law must also be considered.

Samxboy

Reading the convention, there is clear intent that states.... Subparagraph 1(a) is subject to the saving clause of paragraph 4 of Article 1 (General Scope) while subparagraph 1(b) is not, by reason of the exception in subparagraph 5(a) of Article
1. Thus, a U.S. citizen who is a resident of the United Kingdom and receives a pension will be subject to U.S. tax on the payment, notwithstanding the rules in those paragraphs that give the State of residence of the recipient the exclusive taxing right. However, a U.S. citizen who receives a distribution from a pension scheme established in the United Kingdom will be taxable on only the portion of the pension distribution that is taxable in the United Kingdom.

In so far as they state although subject to the savings clause, which is often cited as a get out for the IRS, they state a US taxpayer who receives a UK pension will only be taxed the portion that is itself taxed in the UK.
I read that quite clearly as stating the 25% tax free portion is also tax free for the US recipient.....feeling happier!!!

Owen778

Article 17, paragraph 2 is an exception to paragraph 1 that applies to pension lump sums. There is no need to comment on paragraph 1 when discussing lump sums.
The saving clause allows the US to tax US citizens and residents on UK-derived lump sums where allowed by US law, and the UK to tax UK residents on US-derived lump sums where allowed under UK law. Unfortunately, only the first of these is important, since the US taxes lump sums and the UK does not.

vulcan

just like Nun and I have both told you

Before we take you're statements as verbatim without discussion, perhaps you could indicate your qualifications. Perhaps you're a layman arriving at your own interpretation?

I'm also sensing a touch of cyber rage creeping in here. Sounding less and less a "discussion".

US taxes lump sums and the UK does not

Your in for quite a nasty shock if and when you take out a lump sum from a UK pension fund.

Perhaps a name change from "discussion forum" might be appropriate to reflect dictats issued.

Samxboy

I don't know....with all due respect. They refer to eliminating the possibility of a US citizen taking up residence in the UK during the year the US pension comes up and using the UK taxation rules to get a windfall.
What they refer to quite clearly is a US citizen ( LPR) taking a UK derived pension and allowing the UK tax rules to apply. Why would they go to the trouble of explicitly explain that it in such clear language......

However, a U.S. citizen who receives a distribution from a pension scheme established in the United Kingdom will be taxable on only the portion of the pension distribution that is taxable in the United Kingdom.

The whole document is heavily weighted towards stopping US taxpayers finding foreign loopholes for US pensions. Not so much the other way around...

Owen778

So, the way discussion works is that you respond to what the other person said. I'm perfectly open to you explaining why the saving clause doesn't apply in this case, or why a different piece of legislation supersedes it, or even that the saving clause technically does apply here but the IRS chooses not to implement it. But you don't seem to be doing that.

And yes, I'm just an interested layman. If you're a professional qualified in US tax law as it applies to foreign investments, I'm looking forward to hearing your knowledge.

vulcan

Perhaps you could explain how you arrived at that interpretation.

Owen778

Oh, I just found this, from the IRS: http://www.irs.gov/pub/irs-wd/08-0024.pdf

Which seems pretty definitive, unfortunately.

Owen778

I'm sorry, that was an oversimplification.

Nutmegger

My only thought on reading this was, and I'm interested to hear the answer from the experts, won't you be liable for US taxes under the "substantial presence" test if you are still planning to spend a decent amount of time in the US?

Samxboy

I understood that once you return your GC with appropriate paperwork(I-407) at the consulate, you are then exempt from US taxation from the next calendar year. They state this pretty clearly...no more tax liabilities.

vulcan

Lost in translation? miss quoted? taken out of context even?

just like Nun and I have both told you Every reason to ignore that pompous remark and to question your other dictats.

So assuming we have everything before us, the UK will allow 25% of a pension fund lump sum paid tax free and the balance @ 40 to 45% tax rate.

The IRS will then tax the 25% the UK paid free of tax and, will then tax what's left of the balance after the the UK took 40 to 45%.

Hmmmm that leaves (2-7=11, 11x20%= -5, less $1 donation to ?) Nothing

Unless someone out there knows different.