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 |
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. |
Re: Tax
Originally Posted by zehutiman
(Post 10058076)
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 |
Re: Tax
Originally Posted by nun
(Post 10059216)
If your relative is a US resident then the UK state pension is not taxable in the UK, but is definitely US taxable. He/She should use the form US-Individual-2002 to claim relief from UK taxation and include the UK pension on line 21 of the 1040.
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 |
Re: Tax
Originally Posted by zehutiman
(Post 10060493)
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.
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. |
Re: Tax
Originally Posted by md95065
(Post 10060647)
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. |
Re: Tax
Originally Posted by md95065
(Post 10060647)
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.
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. |
Re: Tax
Originally Posted by nun
(Post 10060701)
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. |
Re: Tax
Originally Posted by md95065
(Post 10060844)
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.
|
Re: Tax
Originally Posted by nun
(Post 10060994)
Well there is the possibility of FBAR if the money is kept in the UK. Not strictly a tax implication, but another form to worry about
|
Re: Tax
Thanks to everyone for some very valuable info.
zman |
Re: Tax
Originally Posted by nun
(Post 10060701)
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. 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. |
Re: Tax
Originally Posted by punktlich2
(Post 10064615)
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. |
Re: Tax
Originally Posted by nun
(Post 10064775)
This is not strictly correct. If you are a US citizen the wording of the Treaty allows the IRS to tax UK state pension paid to a US citizen resident in the UK.
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! |
Re: Tax
Originally Posted by sunnysideup
(Post 10065483)
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. |
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