Kneeno

I've done a search and can't really see anything pertaining to this? I'm looking to cash out a private pension that I took out with Aviva on the Isle of Man in 2001. I turned 55 a few years ago and am able to access it now and I've been told the first 30% is tax free and the rest will be taxed at 20%. Does anyone know if I'll be taxed over here as a citizen too or are the tax implications different seeing as it's the IOM? It's just under £30,000 and would be the deposit on a new house. I appreciate any and all advice.

lansbury

The IOM doesn't show it has a double taxation agreement with the USA so the worst possible assumption is it is taxable in both places.

List of countries which do have double taxation agreements with the IOM.

https://www.gov.im/categories/tax-va...on-agreements/

celticgrid

That's correct. I have an occupational pension from employment on the Isle of Man. The IOM taxes it at 20% and the full monthly amount (before taxes are taken) is declared as pension income to the IRS and taxed as such.

The good news is that the IOM tax return is a doddle to complete.

tht

Are you not able to take the foreign tax credit/deduction for the tax’s paid in IOM?

The guidance does not mention there needing to be a double tax agreement in place.

https://www.irs.gov/individuals/inte...ign-tax-credit

And pensions are excluded so foreign earned income exclusion is not if much help:

https://www.irs.gov/individuals/inte...come-exclusion

celticgrid

Absolutely. I claim the foreign tax credit. That doesn't necessarily balance the books - for whatever reason I don't get 100% FTC and I have a growing carry-over balance which at least is good for, I think, 10 years.

tht

Its probably state and city tax…. I had the same issue living in NYC and commuting to London for a few years. You end up paying more out of pocket and have a carryover that will expire. It is hard to use because you effectively need to have income that is taxed at a much lower rate or tax free to use it up…

lansbury

But that just means he gets a credit for what was paid in the IOM. It doesn't help in avoiding US taxes being due. Although as he is a US citizen I would guess he would be stuffed anyway on the tax free amount if a Treaty did exist.