UKGIRL55

I am going to take my UK pension as a lump sum, the Pru has said they will pay into my USA account. Anyone know how I can find out what percent the UK will take in tax, I haven't worked in the UK since 1992, and how I can reclaim this tax because of the double taxation treaty. I know the first 25% is tax free.

Owen778

This may be a bad idea - I would be more worried about how much the US are going to take in tax, unless you aren't a US tax resident.

UKGIRL55

I am a US tax resident and there is a tax treaty with UK and I will pay tax on 75% of the lump sum in the UK and I should be able to reclaim that because of the Tax Treaty with the USA. I was just wondering how the UK decide the % when I haven't worked in UK since 1992

Cook_County

Under which treaty article are you reclaiming UK tax on a complete LSD?

frenchsaracen

HMRC will withhold tax at the basic marginal rate ie after the 25% pension commencement lump sum which is not UK tax liable the remaining 75% will be taxed at 20%. This may be reclaimed however the 75% will be liable for US tax at the prevailing marginal rate as it is classed as income.

ARH12345

Probably best seeking financial advice regarding this and building a retirement strategy. It cost dearly if you get this wrong.

lansbury

How do you know what rate it will be taxed at without knowing the total amount. If large enough some of it could be taxed at 40%. Also if you think the US will class 75% of it as income why will the other 25% not be so classed?

Professional advice is need before the OP does anything.

Steve_I

We took advice (albeit from H&R Block) when my wife got a small pension from the NHS a couple of years back. The local office contacted their support team and advised the lump sum was taxable here. The IRS snaffled about a third of it! I had two small pensions mature last year and chose to not take the lump sum for that reason. I just opted for a larger monthly amount. There have been quite a few threads on the subject here. I filled a form with the IRS (sorry, don't remember the number) that they pass on to HMRC so that we pay zero tax in the UK on our pensions. We just declare them on our tax returns here.

durham_lad

I did the same while collecting my UK pension and living in the USA. Form 2002 is the one to fill in and send to the IRS to have HMRC refrain from taking any taxes.

https://www.gov.uk/government/public...ndividual-2002

lansbury

Which was why I asked why the person who posted that 75% of it was taxable here thought that. If the recipient isn't a US citizen but lives here I believe the lump sum isn't taxable, according to an HMRC fact sheet. If they are a US citizen it is.

That is according to a HMRC fact sheet, the IRS might well say it is all taxable. Others on BE say I have misinterpreted the fact sheet.

BuckinghamshireBoy

I've just withdrawn a UK pension. The tax position is that 25% is UK tax free, as to the rest, the personal allowance kicks in, then the rest will be taxed in the appropriate bandwidth, so part could indeed go to 40%. The pension company is - I believe - obliged to withhold tax at the time of paying out, and it is up to the recipient to sort out any discrepancies with HMRC.

I 'phoned HMRC to check the position and had an extremely useful conversation where I was told that where double taxation agreements were in place then there should not be any UK tax liable. However, this can vary from country to country... I was told to complete a self assessment for the tax year in question, using form SA100. I was also told to also see SA102, SA109 and SA101 - if there's any other UK based income involved.

It may be possible - depending on the company - to take the pension in multiple chunks over a few years, in a way as to eliminate/reduce the tax liability. But the 25% tax-free is a one off, so after that personal allowance applies.

Steve_I

I wasn't aware the USC thing made any difference when it came to tax. I guess you learn something every day! Everything I've read was about whether you were resident in the US for tax purposes. In our case, my wife is a USC anyway, so they were going to tax it whichever way. I just decided to play it safe and take the bigger pension amount.

lansbury

Have a read of this https://www.gov.uk/hmrc-internal-man...elief/dt19876a Bottom of the page under the heading Lump Sums.

Steve_I

I see that. Her lump sum was taxable anyway, even according to that document. H&R Block showed me something from an IRS publication which said it was taxable. I might see if I still have it. Has anyone ever tested the lump sum thing as a UKC, resident in the US? It's a moot point for me now, as I'm likely to be a USC before my next two pensions mature. Interesting though!

lansbury

There is a letter, a copy of which was posted on the Internet, from the IRS which says the lump sum was taxable. This was some years ago, around 2008 if memory serves correctly. If you have something later than that it would be good to see.

I don't know of anyone on BE who has tried the stance put forward in the HMRC manual. Until someone does it is all just our opinion of what we think various documents mean. In other words no-one really knows. If someone has tried I wish they would post a report of the outcome.