dunroving

That's correct. (So glad even I can answer this question!)

Momzilla

Sorry for being in the wrong place, but I can't seem to find this information anywhere else and you folks seem to have a really good grasp of things. I have an adult child who is planning to move to the UK from the USA and who would like me to join her there. If I do go, I intend it to be a permanent move. I have dual USA/Irish citizenship, which I believe means I can seek work in the UK/retire there without problem.

I will soon be 62, and old enough to retire from my University job (State of California) with a basic early pension (about 20,000 pounds a year, gross, at $1.70 to the pound, from a mandatory defined benefit program). I would also receive a lump sum of $3,000 a year to put towards health insurance. While I could also draw US social security early, it would be prudent for me to put off doing so for at least four or five years to bring up the monthly payments - if I can manage without SS for a while, it would basically double my retirement income when I did file at full age. So that would be preferable.

It is my understanding that the UK will be the entity that taxes both the US social security and the University pensions once I have relocated. Is this correct? I will have to file tax forms in both the USA and the UK, but credits for UK payments will cancel out any US tax?

In checking my preferred scenario (University pension only) it looks like the UK taxes would actually be less than the US taxes since the personal exemption amount is much higher in the UK. (This can't be right??) Would I have to pay to the IRS the US tax amount that was not credited away by the UK tax paid, in addition to the UK taxes? In effect, paying the higher amount, just split between governments?

Am I correct in assuming that I would not have to pay into the UK's NI on either the Uni pension or SS, but only on any work actually done in the UK?

If I am able to find work, it will probably not be full time (I envision myself as a lunch lady or school crossing "lollypop lady", hospital volunteer, or something of that ilk), and I do know that I can earn a certain amount before US social security starts penalizing me for working, for the next several years. I believe that anything I can earn in the UK would rightly be taxed in the UK (only, per tax treaty). Would I be required to pay into the National Insurance if employed in the UK at my age, or is there an exemption for older people? If I need to contribute, I assume that when I stopped working my time in the US SS system (over 40 years) would top up my required minimum, and I could apply for a pension (albeit a miniscule one) on the UK system so that any contributions were not lost?

Thanks for your patience and any advice you can offer.

dunroving

- As far as paying NI on pensions go, you are correct; it was recently clarified for me that NI is only payable on work-related earnings, not on pensions.

- As far as income tax is concerned, generally speaking you are correct. You will not have to "pay the same amount of tax twice" so to speak. Any tax paid to the UK can be counted against your US tax liability. However, your statement about "credits for UK payments will cancel out any US tax" (my underline) isn't entirely correct. It will only cancel out the equivalent amount of US tax. So if you would have been liable to pay $10k in US income tax, but you paid the equivalent of $8k to HMRC, you'd still owe $2k to the US. [These are generalised statements about the principle; the actual amounts may be different]. The main principle is that you may be liable to pay some UK income tax and some US income tax, but you won't have to pay "double tax", so to speak.

My understanding is that once you are past UK retirement age, you won't be liable for (nor eligible) paying NI. At 62, you may already be past UK retirement age for a woman (see the chart here to figure it out). There is provision to pay 6 years of past NI, but to qualify for this, I believe you must have some past record of NI (or equivalent, e.g., Irish). It sounds like you have never worked in Ireland or the UK in the past - is that correct? Have you worked in any other EU country?

This would mean that you might be able to earn a year or two of NI, in which case I believe you are correct - you could use your US SS history to qualify for a UK state pension at a proportional rate (proportional to the one or two years of NI you paid).

Momzilla

Thank you! This helps me greatly with planning. Thanks for the link. If I will have to pay NI tax if I work there, that is ok with me - I consider it an opportunity expense. It will just make filing taxes more complicated, i think. (No, I have never worked in the EU.)

nun

You won't pay NI if you are over UK state pension age, but you still have to pay income tax on your UK earnings.

How you are taxed if you move to the UK will depend on your residency status in the UK. You might be able to be taxed on a remittance basis for some time, I'm not really sure of the new rules. However, I'll assume you are bringing your CA state pension and US SS into the UK to live on.

The US SS is not taxable in the US, it's just taxable in the UK
A pension from the CA state university system is a Government pension and as you are not a UK citizen, even if you reside in the UK, the CA state pension is only taxable in CA and the US.

Any earnings you have are taxable in the UK and in the US, but you can either use the foreign earned income exclusion or income tax credits to deal with any US tax bill.

Momzilla

Hi, thank you, Nun. Unfortunately, social security in the US is taxable if, when combined with a private pension, the total goes over a certain level. If I had only social security income, it would not be taxed. I'll pay federal taxes on 85% of my social security, I believe, when I do decide to draw it. Some of that will be offset by my continuing student loan payments, which I can write off. I'll also be taxed on my Uni pension by the Feds. California does not tax social security and/or pensions of non-residents. (Thank goodness.)

I was planning to have both incomes direct-deposited into my US bank account, and pay my bills/expenses with either a US credit card that has an excellent exchange rate and no over-seas transaction fees (and which I can pay off electronically from my bank account) or open an account there and withdraw from my US account via an ATM only the money I would need to put into the local bank - I assume this would be required for rent and utilities.

It's good to hear about the University pension being exempt - it will help keep me sane with the paperwork for a few years. From what numbers I could crunch, it looks as if the payments to the UK, if required, would pretty much equal those to the US IRS. I found info online that says that only 90% of the pension income is to be reported in the UK, and there is a 10,000 standard deduction prior to tax being computed. The Uni pension isn't huge, so that helps.

Again, thank you for your help!

nun

The taxation of SS is one area where the US/UK tax treaty modifies IRS regulations for the US citizen. Take a look at Article 17 of the US/UK tax treaty and you will find that if you move to the UK any US SS you get will not be taxable in the US....only in the UK.

This might be a good plan if you are taxed in the UK on a remittance basis, but would not help if you are taxed on an arising basis. Maintaining a US bank account (particularly in CA) might open you up to continuing CA state tax. You need to research CA residency and domicile issues as they relate to your tax.

As you say the UK taxes 90% of foreign pensions. Again you need to refer to the US/UK tax treaty. The UK will tax 90% of your US SS, again, no US tax will be due). If your pension is coming from the state of CA it is only taxable in the US, there is no UK tax on it because you are not a UK citizen.

Your situation works out quite well because your only US taxable income is your CA state/uni pension. If you move to the UK you would not even include your US SS on your 1040 and your US deductions will greatly reduce your US taxable income. In a similar way your only UK taxable income will be US SS and you would only enter that on your UK self assessment (assuming you don't become a UK citizen) and leave the CA state pension off it. The UK 10kGBP personal allowance would reduce your taxable income greatly.

Momzilla

Nice that, after all these years, SOMETHING is working out well. I did some checking on the bank in California, and I could argue the case. More easily, I could open an account in another state that has no state tax. Or I could just have it sent to the UK. I'm just trying to avoid the incoming wire transfer fees every month...

Thanks, Nun

nun

You need to be careful about your CA residence if you move to the UK. A state pension cannot be taxed by that state if you are a non-resident. So if you moved to NY permanently federal law says that the CA state pension is only taxable in NY. However, CA will regard you as still tax resident if it believes you still to be domiciled in CA...ie that if you were to return to the US you'd plan to live in CA, so keeping a CA bank account or any ties with CA could make things tricky.

Momzilla

Not sure it's federal law on the state pension tax - usually each state has it's own tax code, which may or may not mirror the federal code (California does not follow the fed code in several areas). But in California, yes, non-residents are not taxed by the state of C - you have to live here to be taxed by the state. Residents are, however, taxed on world-wide income by both the state and the IRS.

Yes, definitely not worth it to avoid a one-time incoming direct deposit fee! I had been with Bank of America, but it looks like they only do credit cards in the UK, so I'll find another and open an account into which I'll have my pension direct deposited electronically. If that's not possible, I'll open a bank account in one of the states that has no state taxes.

Looking forward to this all very much. Thanks for your help.

nun

Google "PL 104-95". States have incorporated it into their tax codes.

I'm suggesting you be careful because CA is a "domicile state". They will consider you resident until you have settled permanently elsewhere and do not intend to return to CA. Sometimes if you move directly to another country as a US citizen its hard to convince US organizations that you have really left, particularly if you have family in the US. Of course if you move to the UK and plan to settle there permanently that has UK tax implications too.

Momzilla

Hi yes, I know. I have no other family here, and I do intend to settle there. I am happy to deal with the repercussions of settling there, though I will probably never be a citizen. Thanks!

UK2US1979

nun wrote <The law isn't vague, but the knowledge of it probably is. When you apply for SS you should definitely declare all pensions due to non-SS earnings. How SSA deals with that information might well vary. Personally I will not tell them about my UK state pension, but I will mention my MA state pension....although they will already know about that as MA contacts SSA when I officially retire form state service.>

Just reading some of the posts again to gain some "wisdom"! I thought in one of the posts, someone said that the SSA requires the recepients to advise the SSA whenever they start receiving a foreign pension (and that includes the UK state pension).
I have not read the SSA operational manual re WEP someone mentioned here, but if true, wouldn't one be taking a risk if he/she chose to not declare it.

I am now in a situation where even though I started receiving the SS at 63 a few years back, I might be eligible to receive UK state pension. I will know for sure when I do file. The UK pension office stated that Instead of taking the "extra state pension" in lieu of the past couple of years when I became eligible, I can take a lump sum instead. The reason for delayed claim is that, to be honest, I didn't know if I was eligible for the UK state pension.

I asked this question before and nun was kind enough to opine on the issue. I guess, if the UK state pension is subject to WEP, then hopefully the SSA won't WEP the lump sum taken in lieu of the past couple of years UK pension. If the SSA decide to WEP the UK pension that includes the "extra" pension going forward (even though I am not opting for this), that would be OK with me. Any further input will be greatly appreciated.
I guess I will have to notify the SSA in Baltimore when I do start receiving the UK pension.

P.S: Of course I will hope that in light of one of the court ruling stated earlier, the state pension will not be subject to WEP anyway! Wishful thinking?

nun

SSA now has a nice online calculator to see if WEP will apply to your UK pension. It seems to work well. I answered the questions for my situation where I paid UK voluntary NICs from US wages and got the result that "WEP does not apply".

International Programs - Windfall Elimination Provision and Foreign Pensions

Whether WEP applies depends on a series of quite complex circumstances and I worry that the SSA will get things wrong unless they know about the exact circumstances.

dunroving

I received my latest SS statement this week and went online to the WEP calculator. Interestingly, when I input my US income over the years I paid US SS (late 1990s to 2006; straight from my SS statement) and entered my "other pension" as zero, my pension benefit amount was about 20% less than was stated in my SS statement.

However, I do think it is useful for helping people to get a ballpark estimate of how much WEP might affect them, and the limit of non-SS pension income beyond which no additional WEP is levied.

[ETA: The WEP calculator I used was this one. I just tried the one you linked to above and it ended up telling me "WEP DOES NOT APPLY TO YOUR U.S. SOCIAL SECURITY BENEFIT", which I know is incorrect, so I must have answered one of the questions incorrectly. I did find the questions a bit arcane. Might post later with some of them to see how other people are interpreting some of the language.]