UK state pension and USA social security
#1066
Re: UK state pension and USA social security
Random thing I've been wondering, and since all the usual suspects are on this thread...
It's about WEP and lump sums. Am I right in thinking that the WEP calculation allows for someone having taken a foreign/ non-SS earnings funded pension as a lump sum rather than annuitized into a pension? If so, I assume some background actuarial work is done to notionally change this into a stream of pretend income payments, and WEP applied accordingly.
Assuming the above, how does it allow for time slip between the two transactions? Say, for example, someone takes their UK pension as a lump sum aged 55. Approaching age 70, they now apply for SS, and dutifully report that yes, they have at one time taken a lump sum in place of a pension, and supply details.
How would inflation be accounted for? And exchange rates for the lump sum, in order to even start the calculation - use the one for the year of the SS application, or the one from 15 years ago when the lump sum was crystallized into dollars, and declared as taxable income?
It's about WEP and lump sums. Am I right in thinking that the WEP calculation allows for someone having taken a foreign/ non-SS earnings funded pension as a lump sum rather than annuitized into a pension? If so, I assume some background actuarial work is done to notionally change this into a stream of pretend income payments, and WEP applied accordingly.
Assuming the above, how does it allow for time slip between the two transactions? Say, for example, someone takes their UK pension as a lump sum aged 55. Approaching age 70, they now apply for SS, and dutifully report that yes, they have at one time taken a lump sum in place of a pension, and supply details.
How would inflation be accounted for? And exchange rates for the lump sum, in order to even start the calculation - use the one for the year of the SS application, or the one from 15 years ago when the lump sum was crystallized into dollars, and declared as taxable income?
#1067
Re: UK state pension and USA social security
#1068
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Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,131
Re: UK state pension and USA social security
I see the whole thing as a giant logic puzzle to gameify, like playing financial Sudoku or chess. How best can I arrange my pieces for maximum yield, taking into account:
- tax relief on contributions into tax-deferred accounts now
- being in a much lower tax bracket later
- early retirement in our 50s
- a window of 8-12 years for 401k-Roth rollovers
- optimal AGI/MAGI for ACA subsidies
- timings to take various UK/ US state and private pensions, given WEP and taxes
- voluntary contributions into the UK state pension
Everyone has to have a hobby...
- tax relief on contributions into tax-deferred accounts now
- being in a much lower tax bracket later
- early retirement in our 50s
- a window of 8-12 years for 401k-Roth rollovers
- optimal AGI/MAGI for ACA subsidies
- timings to take various UK/ US state and private pensions, given WEP and taxes
- voluntary contributions into the UK state pension
Everyone has to have a hobby...
We are just starting our 7th year of retirement, after retiring at age 55, and it certainly beats the bejeebers out of working.
#1069
Re: UK state pension and USA social security
one thing I found is that I (seemingly) can 'earn' $100,000 in foreign (UK) earnings before pay tax.I also don't consider that I 'earned' my pension during the time I have lived in the US.It was money I paid into the UK State pension scheme before I came here.All I am doing (effectively) is getting it back ??
#1070
Re: UK state pension and USA social security
I could never understand my old boss wanting to work till he was 70. He had paid off his mortgage 20 years ago and was making $140-$150k a year just going into the bank.
#1071
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK state pension and USA social security
At the time of "earning" the pension, did you file a US return 1040 declaring all contributions you made to the pension, all contributions any employer made to the pension, and any yearly growth in the fund?
#1072
Re: UK state pension and USA social security
2015 is my first year of getting my UK state pension and during the 14 years I've been here I didn't make contributions into the pension.
Re the $100K I just noticed it somewhere in my 'research' and I'm not sure what it referred to.
Thank you for your help
Re the $100K I just noticed it somewhere in my 'research' and I'm not sure what it referred to.
Thank you for your help
#1073
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK state pension and USA social security
You've also mentioned "I had no idea I had to declare pension income, either state or private and have also been receiving 2 x $600 (approx) for 14 years (since I've been here !!" It's this bit that also caught my eye.
Start with the UK State pension. According to the treaty, someone in your position (US resident for tax purposes) will pay tax to the US on the UK State pension. I'll provide a link to the "Technical Explanation" of the treaty. It's easier to read and understand than the treaty alone. You're looking for Article 17.
https://www.treasury.gov/resource-ce...ts/teus-uk.pdf
The US taxes on worldwide income. If you were in the UK, paying tax on the arising basis, it would be exactly the same. The UK would tax you on worldwide income. I live in the UK. I have pensions from France, and the UK tax me on them because I'm resident in the UK. Generally (and there are exceptions), it doesn't matter how the income came about, you're taxed on it because you're a resident for tax purposes. The UK taxes me on the UK State pension and the US also taxes me on the UK State pension because I'm a US citizen (USCs are deemed resident in the US for tax purposes). I have ways around it, because of my physical residence, but you don't since you're physically resident in the US, and the UK deducts no tax from the pension.
There are ways to reduce tax on foreign pensions by establishing a basis in the pension (already paid tax to US at time of employment). In your case, this didn't happen because you were not yet (I assume) a US Person. In any case, unless we're discussing voluntary contributions, establishing a basis in the UK State pension is impossible due to NI class 1 contributions being for more than the pension alone.
As for the "$100K [you] just noticed [.] somewhere in [your] 'research", yes, for some people, they can have $100,000 of UK income free of US tax, BUT, you have to be resident outside the US (like me) for the better part of the full year for this to apply (search for FEIE). Also unfortunately, this only applies to earned income (wages related), not pensions.
This may help to get you started to understanding. If, and when, more questions pop up, come back and ask us.
And don't forget about WEP.
Last edited by theOAP; Jan 28th 2016 at 5:02 pm. Reason: One paragraph was a grammatical mess. It's still not much better.
#1074
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK state pension and USA social security
The US taxes on worldwide income. If you were in the UK, paying tax on the arising basis, it would be exactly the same. The UK would tax you on worldwide income. I live in the UK. I have pensions from France, and the UK tax me on them because I'm resident in the UK. Generally (and there are exceptions), it doesn't matter how the income came about, you're taxed on it because you're a resident for tax purposes. The UK taxes me on the UK State pension and the US also taxes me on the UK State pension because I'm a US citizen (USCs are deemed resident in the US for tax purposes). I have ways around it, because of my physical residence, but you don't since you're physically resident in the US, and the UK deducts no tax from the pension.
Concerning the 2 x $600 income, the US taxes on worldwide income. If you were in the UK, paying tax on the arising basis, it would be exactly the same. The UK would tax you on worldwide income. I live in the UK. I have pensions from France, and the UK tax me on them because I'm resident in the UK. Generally (and there are exceptions), it doesn't matter how the income came about, you're taxed on it because you're a resident for tax purposes. The UK taxes me on the UK State pension and the US also taxes me on the UK State pension plus the French pensions, because I'm a US citizen (USCs are deemed resident in the US for tax purposes). I have ways around it, because of my physical residence, but you don't since you're physically resident in the US, and the UK deducts no tax from the pension.
#1075
Re: UK state pension and USA social security
Do you happen to know the situation with regards to rental income and living in the UK. This sounds scary
Such passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the "net rent" received.
Such passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the "net rent" received.
#1076
Re: UK state pension and USA social security
Do you happen to know the situation with regards to rental income and living in the UK. This sounds scary
Such passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the "net rent" received.
Such passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the "net rent" received.
#1078
Re: UK state pension and USA social security
The DTA (Article 6) gives primary the right of taxation on rentals to the residence country, but if you live in one country and own a rental in the other you'll still have to comply with the tax rules in the other country as you have source income in that country, but you'd be able to apply FTCs for the tax you paid to your residence contry against any tax due.
Last edited by nun; Jan 29th 2016 at 1:04 pm.
#1079
Re: UK state pension and USA social security
The DTA (Article 6) gives primary the right of taxation on rentals to the residence country, but if you live in one country and own a rental in the other you'll still have to comply with the tax rules in the other country as you have source income in that country, but you'd be able to apply FTCs for the tax you paid to your residence contry against any tax due.
#1080
Just Joined
Joined: Jan 2016
Posts: 5
Re: UK state pension and USA social security
My wife is 63 just claimed her uk state pension , we have lived here in the USA for 18yrs we have duel citizenship , my wife will claim her US social security in 3 yrs , will her uk state pension affect her US social security when she claims , we will have lived here for 21 yrs , also do we have to pay tax on our Uk pension . Thank you for any help you can give us , we are new to this site why did it take us so long to find it , it looks a great site and we look forward to using it a lot more .