Tax
#1
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Joined: May 2012
Posts: 3
Tax
I could use some help, please.
While I am an expat living in the US, I never worked in GB. However, my relative did and, while he's been in the US for the past 40+ years, is currently receiving social security from GB. He's concerned that, while the money goes into an account in England, should it be taxed? If so, by whom? (I think GB was taxing it for a while). Should he be declaring it on his US tax return?
While I'm trying to educate myself on it all, I'm confused with the terms I see thrown around; social security is not a pension, right?
Thanks for any insight.
zman
While I am an expat living in the US, I never worked in GB. However, my relative did and, while he's been in the US for the past 40+ years, is currently receiving social security from GB. He's concerned that, while the money goes into an account in England, should it be taxed? If so, by whom? (I think GB was taxing it for a while). Should he be declaring it on his US tax return?
While I'm trying to educate myself on it all, I'm confused with the terms I see thrown around; social security is not a pension, right?
Thanks for any insight.
zman
#2
Re: Tax
Welcome to BE.
Whether the money is taxed in the UK or not...as he is a US resident he should have been declaring it on his annual US tax return.
I am moving your thread over to our US forums.
Whether the money is taxed in the UK or not...as he is a US resident he should have been declaring it on his annual US tax return.
I am moving your thread over to our US forums.
#3
Re: Tax
I could use some help, please.
While I am an expat living in the US, I never worked in GB. However, my relative did and, while he's been in the US for the past 40+ years, is currently receiving social security from GB. He's concerned that, while the money goes into an account in England, should it be taxed? If so, by whom? (I think GB was taxing it for a while). Should he be declaring it on his US tax return?
While I'm trying to educate myself on it all, I'm confused with the terms I see thrown around; social security is not a pension, right?
Thanks for any insight.
zman
While I am an expat living in the US, I never worked in GB. However, my relative did and, while he's been in the US for the past 40+ years, is currently receiving social security from GB. He's concerned that, while the money goes into an account in England, should it be taxed? If so, by whom? (I think GB was taxing it for a while). Should he be declaring it on his US tax return?
While I'm trying to educate myself on it all, I'm confused with the terms I see thrown around; social security is not a pension, right?
Thanks for any insight.
zman
#4
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Thread Starter
Joined: May 2012
Posts: 3
Re: Tax
If you could indulge one last query: Do you think it matters if they keep the money over there and never bring it state-side? They've only accessed it when they've visited family over there.
Thanks once again.
zman
#5
BE Forum Addict
Joined: Mar 2008
Location: Santa Cruz, CA
Posts: 4,913
Re: Tax
The one thing that does matter is that if keeping the money in the UK results in them having a total of more than $10,000 in overseas accounts then they need to make sure that they file the appropriate FBAR disclosure every year.
#6
Re: Tax
No, it doesn't matter where they keep the money - the tax implications (whatever they may be) are the same regardless of whether the money stays in the UK or gets moved to the US.
The one thing that does matter is that if keeping the money in the UK results in them having a total of more than $10,000 in overseas accounts then they need to make sure that they file the appropriate FBAR disclosure every year.
The one thing that does matter is that if keeping the money in the UK results in them having a total of more than $10,000 in overseas accounts then they need to make sure that they file the appropriate FBAR disclosure every year.
#7
Re: Tax
Under the Tax Treaty a UK state pension paid to a US resident is only taxable in the US. However, if the pension is paid into a UK account any interest or capital gains will be taxable in both the UK and the US. If the UK pension was paid into a US account there would be no UK tax liability on the interest and gains, tax would only be due in the US.
#8
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Joined: Mar 2008
Location: Santa Cruz, CA
Posts: 4,913
Re: Tax
I don't agree.
Under the Tax Treaty a UK state pension paid to a US resident is only taxable in the US. However, if the pension is paid into a UK account any interest or capital gains will be taxable in both the UK and the US. If the UK pension was paid into a US account there would be no UK tax liability on the interest and gains, tax would only be due in the US.
Under the Tax Treaty a UK state pension paid to a US resident is only taxable in the US. However, if the pension is paid into a UK account any interest or capital gains will be taxable in both the UK and the US. If the UK pension was paid into a US account there would be no UK tax liability on the interest and gains, tax would only be due in the US.
#9
Re: Tax
OK - granted - if they invest the money in the UK so that they are generating interest or capital gains then that is a different matter - just as it would be if they invested any other money in the UK - but if you just keep the money in the UK and do nothing with it then it doesn't matter.
#11
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Joined: May 2012
Posts: 3
Re: Tax
Thanks to everyone for some very valuable info.
zman
zman
#12
Just Joined
Joined: Jul 2009
Posts: 21
Re: Tax
I don't agree.
Under the Tax Treaty a UK state pension paid to a US resident is only taxable in the US. However, if the pension is paid into a UK account any interest or capital gains will be taxable in both the UK and the US. If the UK pension was paid into a US account there would be no UK tax liability on the interest and gains, tax would only be due in the US.
Under the Tax Treaty a UK state pension paid to a US resident is only taxable in the US. However, if the pension is paid into a UK account any interest or capital gains will be taxable in both the UK and the US. If the UK pension was paid into a US account there would be no UK tax liability on the interest and gains, tax would only be due in the US.
It is correct that all State pensions are taxable (under the US-UK agreement) in the state of residence. On the other hand, government service pensions are taxed (under that convention) only by the state paying them, although a US state can also tax them even if the IRS cannot. Doesn't help a lot of people, but those it does help save a lot of tax (their marginal rates in the two countries are lowered).
Another issue: the Totalization Agreement (on state pensions) does not prevent the US from imposing its Windfall Elimination Provision. In my case that reduces my US Social Security from a projected $900+ a month to $350. That's because SS is skewed to help the low-paid, and it is assumed if you are getting a foreign pension you were not necessarily low-paid. It's a complex formula; I think it reduces your SS by 50¢ per dollar received, and is phased out, and eliminated if you had "substantial US earnings subject to FICA or SET" for 33 years.
#13
Re: Tax
On the other hand, government service pensions are taxed (under that convention) only by the state paying them, although a US state can also tax them even if the IRS cannot. Doesn't help a lot of people, but those it does help save a lot of tax (their marginal rates in the two countries are lowered).
Another issue: the Totalization Agreement (on state pensions) does not prevent the US from imposing its Windfall Elimination Provision. In my case that reduces my US Social Security from a projected $900+ a month to $350. That's because SS is skewed to help the low-paid, and it is assumed if you are getting a foreign pension you were not necessarily low-paid. It's a complex formula; I think it reduces your SS by 50¢ per dollar received, and is phased out, and eliminated if you had "substantial US earnings subject to FICA or SET" for 33 years.
#14
Re: Tax
It doesn't spell out a US citizen getting UK pensions (in addition to US pensions), living in UK.
At face value you initially interpret Article 17 as 'state pensions are taxed in the state of residence'. But read paragraph 3 carefully and draw a flow diagram of 'contracting state' and 'other contracting state' and who is taxing what and you come to nun's conclusion.
Geez - I'm a dual citizen and will be retiring in the UK with US SS, UK state pension, US 401k and UK company pension and my wife with a similar mix. It's a bloody nightmare. And my wife has to figure out whether to take US SS with totalization (based on UK NI contributions, she doesn't have enough SS) or just take UK state pension, or take US spousal SS based on my contributions, with offset for her UK company pension and WEP.
I was hoping for a simpler life in retirement - not!
#15
Re: Tax
At face value you initially interpret Article 17 as 'state pensions are taxed in the state of residence'. But read paragraph 3 carefully and draw a flow diagram of 'contracting state' and 'other contracting state' and who is taxing what and you come to nun's conclusion.
Geez - I'm a dual citizen and will be retiring in the UK with US SS, UK state pension, US 401k and UK company pension and my wife with a similar mix. It's a bloody nightmare.
I'm in a very similar situation to you and here is how I understand things for a US/UK dual citizen resident, ordinarily resident in the UK. ie taxed on an arising basis by HMRC.
UK state pension - taxable by UK and US
US SS - only taxable by UK
US 401k - taxable by US and UK, there will by 20% US mandatory tax withholding and you can take that as a FTC on your UK taxes. If you roll the 401k over to an IRA the withholding goes down to 10%. This won't change your overall tax bill, but might reduce the amount you need to claim back from the IRS due to excess withholding.
UK company pension - US and UK taxable. These can be tricky as tax professionals disagree about how these should be taxed. If it is a defined benefit/final salary pension it is definitely covered by the treaty. If it is a personal pension with defined contributions (similar to a 401k) then some say it is covered by the treaty and some say it isn't or decide not to use the treaty. This is more for how gains prior to distributions are taxed and to implement a strategy for people who expect to have high incomes in retirement so that the distributions are not treated as income, as a tax free basis and capital gains. But that's not relevant for a UK resident.