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UK state pension and USA social security

UK state pension and USA social security

Old Apr 16th 2015, 11:44 pm
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Default Re: UK state pension and USA social security

Posted this on the other Board:

<<<nun wrote: <....You will need file a certificate of US residency, form 8802, and a US-individual 2002 to make sure HMRC your pensions are paid free of UK tax....>

Getting ready to file a claim for the UK basic Pension. Reading a couple of Posts on Ex Pats Boards it appears that filing of of these forms is not always required in order to get the baisc pension paid without deduction of UK taxes ( referring Nutmegger's case).
My situation is a bit different though. I shall be getting a deferral lump sum (in lieu of past couple years pension) in addition to the monthly basic pension going forward. Form 2002 states that UK basic pension is paid without deduction of any taxes at source. Don't know if same applies to the Deferral lump sum ( as opposed to "trivial accumulation pension" Lump sum which, apparently is taxed as PAYE).

Has any one filed these forms so they are exempted from the UK tax deduction at source? I casually browsed the Form 8802 and must say, at first glance I find this form a bit confusing. I dont understand what form 6166 is in Q3 A.

Any comments from nun and others would be greatly appreciated>>>>
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Old Apr 17th 2015, 12:50 am
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Default Re: UK state pension and USA social security

I filed the forms, my wife didn't as her UK income is less than the personal allowance. Neither of us pay UK taxes. However she will be submitting the forms because the likelihood is the personal allowance will be withdrawn from UK citizens who live overseas. Cost to file is $80 so she is doing it now rather than wait to get caught out.
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Old Apr 17th 2015, 1:33 am
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Default Re: UK state pension and USA social security

I filed the forms a few years ago when I started received a private pension. At the time it cost $35 to get the certificate from the IRS stating I was a US tax payer, otherwise no problems really.
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Old Apr 17th 2015, 2:42 pm
  #724  
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Default Re: UK state pension and USA social security

Originally Posted by UK2US1979
I dont understand what form 6166 is in Q3 A.
Form 6166 is the actual Certificate of US Residency that the IRS sends to HMRC.

I assume the deferral lump sum is just a one time payment because you took UK state pension later (I also assume you got the option of a larger state pension payment) then it will also be tax free in the UK but fully taxable in the US because it is a Social Security payment.

Last edited by nun; Apr 17th 2015 at 3:00 pm.
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Old Apr 17th 2015, 3:44 pm
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Default Re: UK state pension and USA social security

Originally Posted by lansbury
I filed the forms, my wife didn't as her UK income is less than the personal allowance. Neither of us pay UK taxes. However she will be submitting the forms because the likelihood is the personal allowance will be withdrawn from UK citizens who live overseas. Cost to file is $80 so she is doing it now rather than wait to get caught out.
Could you clarify the inference that the personal allowance will be discontinued. I'm quite confused. I am retired and have been drawing SS since 2013; I became a US citizen in 2008 and a resident since 1996. I begin drawing my UK state pension next month. In a conversation with DWP in Newcastle I was told that UK state pensions paid overseas are not taxed in the UK - likewise with a military pension; so what is the need for asking for UK tax exemption? Or am I missing something.
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Old Apr 17th 2015, 4:11 pm
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Default Re: UK state pension and USA social security

Originally Posted by Sailortobe
Could you clarify the inference that the personal allowance will be discontinued. I'm quite confused. I am retired and have been drawing SS since 2013; I became a US citizen in 2008 and a resident since 1996. I begin drawing my UK state pension next month. In a conversation with DWP in Newcastle I was told that UK state pensions paid overseas are not taxed in the UK - likewise with a military pension; so what is the need for asking for UK tax exemption? Or am I missing something.
In your circumstances there does not appear a need to do it, unless something changes. For those with private pensions they should do so.

Here is some information abut the removal of the tax free allowance for those living overseas. While not decided yet is seems to be creeping ever closer. UK government to strip personal tax allowance from expats overseas - Expat News at ExpatsBlog.com
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Old Apr 17th 2015, 5:24 pm
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Default Re: UK state pension and USA social security

Originally Posted by UK2US1979
I shall be getting a deferral lump sum in addition to the monthly basic pension going forward. Form 2002 states that UK basic pension is paid without deduction of any taxes at source. Don't know if same applies to the Deferral lump sum.
Has any one filed these forms so they are exempted from the UK tax deduction at source? I casually browsed the Form 8802 and must say, at first glance I find this form a bit confusing. I dont understand what form 6166 is in Q3 A.
Sorry you're finding it confusing (it is a bit)....

I, too opted for State Pension lump sum (rather than add'l. monthly payments). No tax was deducted at source for it.

By the way, that's the whole reason for the form 2002 - it prevents Double Taxation. You're accorded a "NT" tax status. This keeps you from being taxed at source ( ie in UK)

Form 6166 - Certification of U.S. Tax Residency

With regard to your query re: line 3a - I left it blank when I completed the form.
See this:

Instructions for Form 8802 (06/2014)

Form 6166 refers to the Certificate of US Residency that the IRS sends to HMRC to verify your US residency:

To obtain it, go to the IRS web site link and pay online. You'll receive an emailed confirmation number. You never receive the actual confirmation letter. The IRS keep it on file.

Then, once you've filled out the HMRC Individual 2002 form - you send that form (per HMRC instructions) to a Philadelphia address for the IRS.
The IRS then send it on to HMRC, together with the 6166 confirmation of your US residency.

Hope this has made the mud a bit clearer
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Old Apr 17th 2015, 5:27 pm
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Default Re: UK state pension and USA social security

Originally Posted by Sailortobe
Could you clarify the inference that the personal allowance will be discontinued. I'm quite confused. I am retired and have been drawing SS since 2013; I became a US citizen in 2008 and a resident since 1996. I begin drawing my UK state pension next month. In a conversation with DWP in Newcastle I was told that UK state pensions paid overseas are not taxed in the UK - likewise with a military pension; so what is the need for asking for UK tax exemption? Or am I missing something.
If your UK source income is below the personal tax allowance then there would be no need to apply for UK tax exemption using a DT-International form and a tax treaty. If your UK income is greater than the personal allowance or the UK abolishes the allowance for EU citizen non-residents then you will have to apply for exemption from UK tax using a tax treaty.

DWP in Newcastle doesn't quite have it correct. UK state pensions are taxable in the UK even when paid overseas, application of a tax treaty in general exempts them from UK tax. The taxation of Government pensions (like those from the military) depends on the applicable tax treaty. A UK military pension when paid to a US resident alien is only taxable in the UK. If it is paid to a US citizen resident in the US then it is only taxable in the US.
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Old Apr 17th 2015, 5:47 pm
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Default Re: UK state pension and USA social security

Thanks for that - but what's your interpretation of the bold text below taken from the article you linked. (My bolding).

The personal allowance will only be retained by expats with an ongoing, strong connection to the UK, with the move expected to raise some £400 million annually for the government. Those who are resident for tax purposes, those who spend at least six months every year in the UK and those whose country of residence has a tax treaty with the UK may also be able to retain the allowance
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Old Apr 17th 2015, 5:55 pm
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Default Re: UK state pension and USA social security

The part in bold from what I have read is meant to cover those instances where a treaty assigns taxing rights to the UK. As an example a UK citizen who is a LPR in the US and in receipt of a UK government pension, can only be taxed on that pension in the UK. Removing the personal allowance would cause them financial loss. However it is only at present a "may" and nothing is decided. Until it is finalized I believe it is best to consider how to protect ourselves against all possible eventualities.
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Old Apr 17th 2015, 6:27 pm
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Default Re: UK state pension and USA social security

I'm sure you all know this, but to make it clear when reading about the UK State Pension:

Generally, UK State Pension benefits, when paid to a taxable UK resident, are subject to UK tax if the total taxable income of the recipient is over the personal allowance. In all cases, there are no taxes deducted directly from the UK State Pension. It is always paid gross, even if the recipients UK total taxable income is above the personal allowance.

Last edited by theOAP; Apr 17th 2015 at 7:24 pm. Reason: in bold
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Old Apr 17th 2015, 6:43 pm
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Default Re: UK state pension and USA social security

When I started receiving a small private pension 8 years ago it was well below the UK tax free allowance but I had a default tax code that was not NT/0 and tax was being paid through PAYE, plus HMRC wrote to me asking for details on my other income sources. This is why I filed the certificate from the IRS to get the NT/0 coding and they refunded the 2 months tax I had paid in my next pension payment. The pension is only £220/month but HMRC were collecting tax from it even though I had been resident in the USA for 20 years, had filed the forms when I left in 1987, and had been receiving my bank interest gross all this time.
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Old Apr 17th 2015, 6:53 pm
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Default Re: UK state pension and USA social security

Originally Posted by nun
Form 6166 is the actual Certificate of US Residency that the IRS sends to HMRC.

I assume the deferral lump sum is just a one time payment because you took UK state pension later (I also assume you got the option of a larger state pension payment) then it will also be tax free in the UK but fully taxable in the US because it is a Social Security payment.
Thanks for the information, nun. Yes, the deferral lump sum is just a one time payment( haven't applied for it yet) and is going to be in excess of the UK Personal allowance. Also on your other point, yes, I do have an option to get a larger state pension instead but not going for it. Seems to me it would be wise to file the forms mentioned earlier even though, a couple of the Posts here suggest that all UK basic pension is paid gross to US residents regardless they filed the forms or not.
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Old Apr 17th 2015, 7:00 pm
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Default Re: UK state pension and USA social security

Originally Posted by theOAP
I'm sure you all know this, but to make it clear when reading about the UK State Pension:

Generally, UK State Pension benefits, when paid to a taxable UK resident, are subject to UK tax if the total taxable income of the recipient is over the personal allowance. In all cases, there are no taxes taken directly from the UK State Pension. It is always paid gross.
<....In all cases, there are no taxes taken directly from the UK State Pension. It is always paid gross.>

Paid gross even if the certificate of US residency not submitted? And would this also apply to a one time deferral Lump sum which is going to be in excess of UK personal allowance?

Finally, if paid gross regardless, why do they have the HMRC Form 2002 which also talks of form 8802.
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Old Apr 17th 2015, 7:07 pm
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Default Re: UK state pension and USA social security

Originally Posted by UK2US1979
<....In all cases, there are no taxes taken directly from the UK State Pension. It is always paid gross.>

Paid gross even if the certificate of US residency not submitted? And would this also apply to a one time deferral Lump sum which is going to be in excess of UK personal allowance?

Finally, if paid gross regardless, why do they have the HMRC Form 2002 which also talks of form 8802.
I would hold off filing 2002 since you have to file IRS 8802 to get the certificate first and that costs $85 these days. If they do withhold taxes in the UK then you can file and get the tax code changed to NT /0 and get it refunded.
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