Mike6650

My wife and I are retiring back to the UK within the next 3 months when our house sells here. I am 69 and my [British] wife is 56.

I have worked under green card for 19 years in the US; I am still working, because my wife does not work and we need the medical coverage for her until we return to UK. My employer has been so fair and accommodating to us.

My problem(s) amount to what we should be paying on retirement earnings in the US and UK, and whether reciprocal arrangements implied by the US-UK Tax Treaty are still in effect.

I am working full time and earning full salary and benefits.

I began receiving US State Pension in January 2019. There was a lump sum payment made in 2018 because of pension deferment

I began receiving UK State Pension in November 2018. There was a lump sum payment also made in January 2019 because of pension deferment.

I also receive [3] UK Company Pensions which are deposited in a UK Bank Account after PAYE Tax has been withheld. All 3 began at different times during 2018. All 3 had “Tax Free” lump sum payouts.

I have ~$260,000 in 401k and ~$120,000 in another pension fund (ESOP) which is being paid out this year (cash or 401k/IRA-CD rollover).

I have read that not only will the US withhold tax on 401k monies withdrawn, but the UK will ALSO demand tax at the appropriate rate if I receive when I am permanently resident in the UK. I had plans to leave at least $200,00 here in the US (in an IRA-CD) and withdraw within my tax threshold every year until it was depleted.

My questions:

1. What tax is due on US SS …in the US and the UK and does the “Windfall” clause kick in?

2. What tax is due on UK SS …in the US and the UK?

3. What tax is due on US SS lump sum payment (We expect to pay US tax and will declare on 1040)? We do not expect to pay UK taxes, is that correct?

4. What tax is due on UK SS lump sum payment (We expect to pay UK tax and will declare on UK Tax Return when we return to UK)? We do not expect to pay US taxes, is that correct?

5. Is the UK entitled to demand tax on our US SS pension…before and/or after we return?

6. What is the best thing to do “tax-wise” with my 401k…cash it out, pay US tax on it, and transfer to UK before we return? Or some other option?

7. The monies that remain here (say in a CD); if we draw down, again say $24,000 every year) to claim full tax forgiveness, what will the UK demand? Is it best to close the accounts before we go return to UK and just pay US tax?

8. Are both tax thresholds (US - $24K; UK - ~ GBP 14K) allowed on earnings in the relative counties, at the same time?

Transferring monies from US to UK has significant benefit while the exchange rates are [still] good for us.

We have not completed a UK Tax Return since we came to US.

It is a mine-field and we cannot get definitive advice on what we should do for the best.

Your counsel would be very much appreciated.

Hotscot

US State Pension?
Which State provides that?

Mike6650

celticgrid

All of which was (or will be) declared on your 2018 US tax return?

Mike6650

Cook_County

How much will it cost you in expatriation tax if you take a treaty-based non-resident position as you are proposing?

First question. Have you reported the UK company pension plans each year since 2011 on Form 8938?

spouse of scouse

Mike, nothing wrong with getting some opinions/suggestions here, but that's a hell of a complex tax situation you've outlined - I'd suggest this is one for the professionals.

durham_lad

I agree with Hotscot that you should maybe consult with a tax pro.

I have been in a similar situation so let me tell you my experiences.

Once I started receiving UK pensions while I was living in the US I filed form 2002 with HMRC and they refunded the PAYE tax they had taken. This is because I was paying US tax on the pension. You should also be declaring and paying US taxes on your 2018 UK pensions, State and private, while paying no tax to the UK. I don't know about the tax free lump sum you received, lots of debate on this site on whether or not that is tax free in the USA.

Once you have moved back to the UK then no US tax is paid on your US SS but it will be UK taxable, and you can have that paid direct into a UK bank. When you claim your SS you will have to declare your other UK pensions and since they were all earned from salaries which did not pay into the US SS then your SS will be reduced through WEP.

In MY situation as a USC returning to the UK this is my particular situation (you have other options as a green card holder):

I do a self assessment in the UK declaring my worldwide income, and also file a US return declaring all my worldwide income.

My UK SS (a.k.a. OAP) will be taxable in both the USA and UK but I will claim the UK tax back as a credit on my US return. (I'm not quite old enough yet)

My US SS will only be taxed in the UK, but will be shown on my US return with the taxable portion as zero.

I rolled over my 401k to an IRA before I left the USA (non taxable event), then paid US tax on it as I converted it to a Roth as Roth withdrawals are tax free in both countries. I retired and had 7 years to do this before moving back. IRA withdrawals while back in the UK will mean HMRC will tax them as with any foreign pension as regular income. My tax bracket here is higher than it was after I retired in the USA which is why I did the Roth conversions

I also have 2 US private pensions which I declare on my UK self assessment and pay UK taxes on them

On my US tax return I claim back the tax I paid in the UK thus reducing my US taxes to zero. (IRS forms 1116)

Hotscot

Not guilty.

Mike6650

First - thanks everyone for the replies.
Have you reported the UK company pension plans each year since 2011 on Form 8938? No I have not, but I did not start collecting until last year. Should I report on 1040 or declare now using that form?

The company I work for put me in touch with their tax pro who only waived a W8-BEN at me and said I only needed to pay tax on US SS. They offered no insight on the 401k.

Hence me coming here...

Hotscot

Keep the 401K where it is.
Let it grow.

civilservant

This is well outside the scope of a laymen.

durham_lad

jjmb

No advice but good luck. Sounds very much like the situation we will be facing if we move back to the UK as we plan. Nightmare😫