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UK Pensions related to UK/US Tax Treaty

UK Pensions related to UK/US Tax Treaty

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Old Aug 11th 2017, 4:00 pm
  #31  
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by lansbury View Post
Public service pension schemes | The Pensions Regulator There is a list of people who receive government service pensions at this link, second paragraph. Teachers are included.

For my police pension my CPA said that as I was not a US citizen the lump sum fell under the "can't be taxed in the US rule". I would take professional advice if you intend to go down that route, and not rely on what us well meaning amateurs might opine.
Thanks for your reply and reference Lansbury.

Can I ask how you actually did submit to the IRS your police pension for that year?

I need to apply for my teachers' pension now. If indeed the pension is taxed as I hope in the UK, being a qualified Government UK pension and me being a GC, then surely the last thing I want to do is to submit forms individual 2002 and 8802(including 6166) to obtain a NT status in the UK!

Is there a form I should be sending to the IRS now? Or do I wait till I complete my tax return this year and then include some form or other?
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Old Aug 12th 2017, 2:21 am
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by imacd View Post
Thanks for your reply and reference Lansbury.

Can I ask how you actually did submit to the IRS your police pension for that year?

I need to apply for my teachers' pension now. If indeed the pension is taxed as I hope in the UK, being a qualified Government UK pension and me being a GC, then surely the last thing I want to do is to submit forms individual 2002 and 8802(including 6166) to obtain a NT status in the UK!

Is there a form I should be sending to the IRS now? Or do I wait till I complete my tax return this year and then include some form or other?
I'll send you a PM with what my CPAs take on it was.
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Old Sep 29th 2017, 2:49 am
  #33  
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Default Re: UK Pensions related to UK/US Tax Treaty

I'd like to return to the HMRC website guidance on the interpretation of the UK/US DTA (dt19876a) regarding pension lump sum payments. It concludes as follows:

The provision preserves the exemption from income tax of a lump sum relevant benefit where it is paid by a UK approved pension scheme to a beneficial owner who is a US resident. However, Article 1(4) will apply in respect of US citizens as the provisions of Article 17(2) are not amongst those listed at Article 1(5). So the US are able to tax lump sums received by US citizens from UK schemes.

Since this is an HMRC statement the arguments about lump sum definitions under IRS rules would not apply. I would consider the HMRC intent here is to include the available 25% initial distribution. It seems to state that US residents who are not US citizens are able to take this without US tax... But was this guidance provided in consultation with the IRS?
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Old Oct 4th 2017, 11:13 am
  #34  
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Default Re: UK Pensions related to UK/US Tax Treaty

Ribenapete, I have heard back from HMRC that indeed the Teachers pension Scheme (TPS) is a qualified UK government pension, and as such, for green card holders (non US citizens resident in the USA) is taxable in the UK.

However, as you correctly state, for US residents the IRS interpretation of the US -UK tax treaty is rally what matters! I have requested from the IRS website, through their help page 5 weeks ago, who I need to contact that is best qualified to make this determination, as of today, no answer!

Do you or anyone else reading this thread, know of the best address within the IRS to ask questions relating to the US-UK tax treaty?
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Old Oct 4th 2017, 11:30 am
  #35  
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by imacd View Post
Ribenapete, I have heard back from HMRC that indeed the Teachers pension Scheme (TPS) is a qualified UK government pension, and as such, for green card holders (non US citizens resident in the USA) is taxable in the UK.

However, as you correctly state, for US residents the IRS interpretation of the US -UK tax treaty is rally what matters! I have requested from the IRS website, through their help page 5 weeks ago, who I need to contact that is best qualified to make this determination, as of today, no answer!

Do you or anyone else reading this thread, know of the best address within the IRS to ask questions relating to the US-UK tax treaty?
The IRS will not tell you and, even if they do, you cannot rely on it.

If you need an opinion to rely on you need a tax adviser to give you one.
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Old Oct 4th 2017, 11:41 am
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Default Re: UK Pensions related to UK/US Tax Treaty

Hi MidAtlantic,

I get the whole you can not rely on it, but at least by getting something from the IRS suggesting an informed opinion, one is much less likely to be hit with penalties for not paying US tax on the UK pension.

Where I live in Utah, trying to find a tax adviser versed in the UK-US tax treaty is not an option! Hence, the need to talk/write to someone informed at the IRS.
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Old Oct 4th 2017, 12:25 pm
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by imacd View Post
Hi MidAtlantic,

I get the whole you can not rely on it, but at least by getting something from the IRS suggesting an informed opinion, one is much less likely to be hit with penalties for not paying US tax on the UK pension.

Where I live in Utah, trying to find a tax adviser versed in the UK-US tax treaty is not an option! Hence, the need to talk/write to someone informed at the IRS.
If you wish you could send a PM and I can give you contact of my tax fellow who is based in UK but does US returns as well. Or do an internet search, I would think on West coast there are some tax advisers who deal in such matters.

Getting advice form IRS wont help very much. First you cant rely on it in case of dispute. Second, the majority of IRS employees are fairly low paid and poorly trained - often studies have shown the incorrect answers they give. The higher-ups have some sharp fellows, but they don't deal with public usually.
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Old Oct 4th 2017, 12:48 pm
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by imacd View Post
.... I get the whole you can not rely on it, but at least by getting something from the IRS suggesting an informed opinion, one is much less likely to be hit with penalties for not paying US tax on the UK pension. .
Unfortunately you don't appear to "get" what "cannot rely on it" means because nothing from the IRS will help you if you are later determined to have underpaid your taxes. I don't think you will get anything on paper, and verbal advice isn't worth anything, and even if it was on paper you still couldn't reply on it! Never mind the fact that ill-informed, poorly trained IRS call center staff will likely have no understanding of British/ international tax issues.

That said, in practice the chances of you being audited is approximately zero as audits are risk and value weighted, meaning the more you earn and more scope you have to evade taxes, e.g. by being self employed or having substantial investments, then the higher the likelihood of you being audited. If you earn less than $100k/yr the chances of an audit are close to zero. ..... And without an audit nobody at the IRS will ever notice if your tax return is incorrect.

Last edited by Pulaski; Oct 4th 2017 at 12:54 pm.
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Old Oct 8th 2017, 12:39 am
  #39  
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Default Re: UK Pensions related to UK/US Tax Treaty

Just to throw in my 2 cents but I was under the impression the tax treaty was changed specifically to stop the IRS from taxing the lump sums.

2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State
So it's not taxable in the UK, so there's no tax in the US. That was thrown in because IIRC the IRS was getting annoyed that Americans were moving to the UK and taking a lump sum out of their 401(k) - that is taxable in the US, so if you move to the UK and you take a lump sum then the IRS wants the tax - "shall be taxable only in the first-mentioned State".

There is no equivalent exemption in the UK Canada treaty, the CRA does not see the lump sum as an annuity/pension so it's taxable in Canada as income.

Anyway this is my rusty memory's recollection.
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Old Oct 8th 2017, 8:18 am
  #40  
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Default Re: UK Pensions related to UK/US Tax Treaty

Most folks (including HMRC) argue that a "lump-sum" means a complete distribution. As this has never been tested in court, no-one knows what "lump-sum" is supposed to mean.
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Old Oct 12th 2017, 12:57 am
  #41  
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Default Re: UK Pensions related to UK/US Tax Treaty

I've never heard that before, it says a "pension scheme" so it's talking about the lump sum distribution from say, a SIPP. Prior to that amendment then yes people could just yank all the money out of their 401(k) once they were tax resident in the UK, hence the change.
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Old Oct 12th 2017, 1:24 am
  #42  
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by Cook_County View Post
Most folks (including HMRC) argue that a "lump-sum" means a complete distribution. ....
As British private pension documentation refers explicitly refer to the right to take a "25% tax free lump sum" on retirement, and has done, AFAIK, as long as "private pensions" have existed in the UK, your inclusion of HMRC in your statement is patently false.

The rest of your statement (excluding HMRC) appears, to the best of my knowledge, to be true in the US.
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Old Dec 28th 2017, 1:55 am
  #43  
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Default Re: UK Pensions related to UK/US Tax Treaty

I am trying to organize my pension affairs in UK. I have lived in US since 2001 and a US citizen since 2016.
I am thinking to gift my UK personal pension lump sum to my mother who is British and lives in the UK. She is 78 and receives state pension and small income from a rental property. The Lump sum would be around UK 50,000.
I have not contributed to either of the two plans since before 2000. Both are Company schemes.
Would she be subject to UK tax as a gift, or I be subject to US or UK Tax on gifting it to her?
Many thanks for any guidance.
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Old Dec 28th 2017, 1:37 pm
  #44  
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by RGSF2001 View Post
I am trying to organize my pension affairs in UK. I have lived in US since 2001 and a US citizen since 2016.
I am thinking to gift my UK personal pension lump sum to my mother who is British and lives in the UK. She is 78 and receives state pension and small income from a rental property. The Lump sum would be around UK 50,000.
I have not contributed to either of the two plans since before 2000. Both are Company schemes.
Would she be subject to UK tax as a gift, or I be subject to US or UK Tax on gifting it to her?
Many thanks for any guidance.
One assumes you have already been reporting the personal pension each year on the Form 8938 & the FBAR. These are unavoidable.


If you argue that the pension commencement lump sum is US tax free under the treaty you would owe no US Federal income tax on the payment. The gift would be a PET in the UK and use a small part of your lifetime exclusion in the US, but not result in tax.
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Old Dec 28th 2017, 4:29 pm
  #45  
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Default Re: UK Pensions related to UK/US Tax Treaty

Originally Posted by Cook_County View Post
One assumes you have already been reporting the personal pension each year on the Form 8938 & the FBAR. These are unavoidable.


If you argue that the pension commencement lump sum is US tax free under the treaty you would owe no US Federal income tax on the payment. The gift would be a PET in the UK and use a small part of your lifetime exclusion in the US, but not result in tax.
Thanks for this. But doesn't that take me right back to the problem that occupies so much of this forum re whether the lump sum is taxable by IRS?
-it seems the majority feel it is.
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