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UK/US double taxation treaty

UK/US double taxation treaty

Old Dec 5th 2015, 8:01 pm
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Default UK/US double taxation treaty

I am a 22 year green card resident here, originally from the UK. Years ago I completed the relevant paperwork and have a letter somewhere from the UK revenue proving that I am UK tax exempt.

I am soon due to receive a lump sum private pension payout that will go into the UK bank account on record. I am keen to hear from anyone who has already gone through the process with the IRS as to how this works.

1) For example I will receive the lump sum in March, so do I then march down to my local IRS office and tell them the exact amount I received? This doesn't seem right as the UK doesn't tax the first 45k so how does the IRS work it out?
2) Also if I leave it until Dec to report on my 1040 will I get all kinds of penalties and interest dating back to March?
3) Does the UK figure out how much of my lump sum is actually taxable and then report that figure to the IRS and so should I wait for that to come through? If I do that wont I be back at the penalties and interest problem between the time of receiving the lump sum and the time it takes for the UK revenue to calculate the taxable amount?
Any knowledgeable input gratefully received
Alan
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Old Dec 5th 2015, 8:11 pm
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Default Re: UK/US double taxation treaty

Originally Posted by alanroberts50 View Post
I am a 22 year green card resident here, originally from the UK. Years ago I completed the relevant paperwork and have a letter somewhere from the UK revenue proving that I am UK tax exempt.

I am soon due to receive a lump sum private pension payout that will go into the UK bank account on record. I am keen to hear from anyone who has already gone through the process with the IRS as to how this works.

1) For example I will receive the lump sum in March, so do I then march down to my local IRS office and tell them the exact amount I received? This doesn't
You have to enter the lump sum on line 16 of your 1040 for the year in which you receive the money. You might look at making a few estimated payments if necessary.

2) Also if I leave it until Dec to report on my 1040 will I get all kinds of penalties and interest dating back to March?
No, April 15th of the next year is the tax filing deadline, but, as I mentioned, you might want to look at some estimated payments if the lump sum will add a lot to your income.

3) Does the UK figure out how much of my lump sum is actually taxable and then report that figure to the IRS and so should I wait for that to come through? If I do that wont I be back at the penalties and interest problem between the time of receiving the lump sum and the time it takes for the UK revenue to calculate the taxable amount?
Any knowledgeable input gratefully received
Alan
None of the amount is UK taxable if you are a US resident. You should file a US-International-2002 form with HMRC (via the IRS). This will eliminate any UK withholding. It is up to you to then figure out the US taxable amount of the lump sum payment.
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Old Dec 5th 2015, 10:50 pm
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Default Re: UK/US double taxation treaty

Thanks, I filed years ago to avoid UK taxation. Do I need to refile again when this lump sum matures in the UK?
The UK allows something like the first 25% as non taxable on a lump sum pension payout. Is there a similar allowance with the IRS for pension lump sum payouts?
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Old Dec 6th 2015, 12:21 am
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Default Re: UK/US double taxation treaty

Originally Posted by alanroberts50 View Post
Thanks, I filed years ago to avoid UK taxation. Do I need to refile again when this lump sum matures in the UK?
The lump sum is UK source income so you need to use the tax treaty so that it is not UK taxable, unless it is less than the UK tax free personal allowance. To claim treaty exemption you use the US-International-2002 form.

The UK allows something like the first 25% as non taxable on a lump sum pension payout. Is there a similar allowance with the IRS for pension lump sum payouts?
Not for a single payment of the entire balance of an account.
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