Robert38

Perhaps somebody can clear up the confusion that exists regarding the UK/US tax treaty. It seems to be interpreted in different ways by different people.

I am a dual UK/US citizen resident of the United States, and I receive a U.S social security pension in addition to a small U.K. state pension. A well-known tax preparation company provides the advice that the UK government state pension is not subject to U.S. income tax based on article 17 of the UK/US tax treaty providing form 8833 is included with the tax return. Also, a Houston tax law firm states- “Distributions from U.K. social security type pensions are taxable only in the U.K.” However, other tax experts claim all income is taxable in the U.S. irrespective of the source.

Can anyone with knowledge of this treaty clear up these conflicting messages?

Pulaski

Hi Robert, welcome to BE.

The best place to ask such questions would be over on the US forum, and there is in fact a very long thread discussing the question you raised, among many other regarding UK-US taxes on pensions.

That said, the tax prep company may have been correct (though I don't think they are, unless it is a pension for "government service") if you were still just a UK citizen resident in the US, but now that you are a US citizen too, most of the rights of taxation on your income are now held by the IRS in the US.

BTW Please take a moment to look at the BE forum rules, (also linked in the top menu bar above, third from the left end of the row).

Robert38

Thank you for your reply and pointing out that there is already a thread on this subject. I will read the rules and take a look! it was my belief that the IRS treated permanent resident aliens and dual UK/US citizens equally for tax purposes, but I gather from your message that when one becomes a US citizen the IRS becomes the supreme authority and the tax treaty that might have been applicable to a permanent resident alien is null and void.

lansbury

This seems to be the relevant paragraph

Having read it a few times I take the meaning as the UK (Contracting State) State Pension paid to a resident of the US (other Contracting State) is taxable in the US (other State).

Robert38

Thank you "lansbury" for your reply. I had to read that paragraph several times also and I have to agree with your understanding. What a pity it could not be written in clearer terms! I am left wondering why some tax professionals interpret it differently. Therefore, will report the UK state pension on the line for "Other Income"

Pulaski

If you haven't done so already, you need to let the pension manager (private pension) and the DWP that you are not tax resident in the UK, so that they don't deduct tax.
I think you're looking at things inside out. Under almost all circumstances US citizens (whether or not they are dual citizens) and permanent residents are taxed on the same basis. One of the exceptions is the taxation of "pensions for government service", which are taxed at source (outside the US) until you become a US citizen.

TerryGoX

I've looked at that forum in the past and it is mostly/all about WEP and whether you can claim UK state pension and Social Security. As for taxes I have been told that UK state pension is regarded as income in the US and thus subject to taxes.

Pulaski

If you live in the US as a US citizen then all your income, (subject to allowances and deductions specified in the US tax code) no matter its source, nor where it is credited, is generally subject to US income tax, including state income tax (in states that have state income tax). There are very few exceptions to this rule.

durham_lad

I agree, and that includes the UK OAP which is also taxable to a resident of the USA as per the treaty. I’m a USC resident in the UK and because of the tax treaty UK OAP and US SS is taxable only in the UK, all the rest of my income is taxable in both countries and I use foreign tax credits to offset the US taxes.

Rete

I find your use of the term "pension" misleading. If you are receiving US Social Security retirement checks monthly, it is not, IMHO, a pension but a benefit.

Hubby who is a Canadian and a US Citizen received a monthly US social security retirement benefit and also receives both a pension and old age benefits from Canada. His pension is taxed in Canada and he pays taxes on it there. The old age benefit is not taxed in either Canada or the US. The receipt of both the Canadian pension and retirement benefits affect his US social security benefit due to the Windfall Act.

durham_lad

I believe he is calling it a pension because that is what it is called by the UK government - the UK Old Age Pension is equivalent to the US Social Security Benefits. I agree that it is confusing since Social Security and the OAP are different in a number of ways. e.g. when a person in the UK dies their OAP stops and there are no survivor benefits, unlike SS which will pay out benefits if the surviving spouse was receiving less than their spouse, including if the surviving spouse was receiving no SS benefits on their own record.

Pulaski

In the UK there is no "social security" paid as a right in retirement it is a "state pension".

IMHO social security sounds like it should be a benefit paid on the basis of low income and need, whereas "a pension" is a payment, to which someone has a right, irrespective of their income level and need, based on the contributions they have have made upto the time they claim their pension.

Given that US "social security" is paid only on the basis of the contributions that reached the social security administration (yes, if your employer defrauded you by taking SS deductions from your pay, but did not forward them to the SS adminstration, then you'll get a reduced or no SS payments when you retire! ), so as US "social security" is something that you pay into during your working life, then claim, as a right, when you retire, it meets the definition of being a pension irrespective of what Americans have chosen to call it.

Rete

Not to be argumentative but the word pension carries a different definition when it comes to the IRS. To the IRS, pensions are taxable commodities. US Social Security Retirement Benefit isn't. This includes pensions received from other countries, as well. As per my previous post, hubby is taxed by both the Canadian government and the US federal government on his Canadian pension. Neither government, however, taxes him on his Canadian Old Age Retirement Benefit. He still is taxed on his Canadian pension by the CRA. A percentage is taken from his monthly pension check as taxes. He does not have to file a CRA form as they accept the withheld funds as payment in full. One small blessing.

Robert38

Rete: It seems that your husband is paying plenty of taxes with the one exception of his Canadian Old Age benefit which you say is not taxed by Canada or the U.S. That is interesting! Do you happen to know the ruling or treaty that covers that U.S. exemption?

durham_lad

SS is taxable by the IRS unless you live overseas and it is exempted by treaty.

https://www.investopedia.com/ask/ans...ity-income.asp

“Is Social Security taxable? For most Americans, it is. That is, a majority of those who receive Social Security benefits pay income tax on up to half or even 85% of that money because their combined income from Social Security and other sources pushes them above the very low thresholds for taxes to kick in.”