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Discussion Starter · #1 ·
Hi,
I'm a Brit who has lived mainly in the US for the last 20 years, but visited England at least once a year, for anything from 2 weeks to 5 months at a time.
I have a Green Card, but am not a US citizen.
I haven't ever formally told the UK government that I'm living in the US. I have been filing a tax return in the US, but not in the UK.

I have just received a small private pension payout in the UK, it’s a "Lump Sum Trivial Commutation" (sounds painful!) when I took my pension early, at age 55, after the UK government just changed the rules.

The pension company said they had to deduct tax, which they did, before sending the payment to me. Total payment was £13K, of which £3K tax was deducted.

I have looked at the UK Residency Test, and could satisfy the requirements if needed.

Because I go back and forth between the US and the UK, I’m wondering whether, for this current tax year, to claim being a UK Resident, since my understanding is that as a UK Resident, I can claim a Personal Allowance of £10,600, which would mean I pay no tax... Whereas if I'm not a UK Resident, I have to declare the UK income on my US tax return... which would likely result in me paying tax.

Any suggestions would be gratefully received!
 

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Because I go back and forth between the US and the UK, I’m wondering whether, for this current tax year, to claim being a UK Resident, since my understanding is that as a UK Resident, I can claim a Personal Allowance of £10,600, which would mean I pay no tax... Whereas if I'm not a UK Resident, I have to declare the UK income on my US tax return... which would likely result in me paying tax.
First of all you must declare that income on your U.S. tax return -- there's no question about that. Whether the income is U.S. taxable or taxed are separate questions, but the income is certainly reportable.

To clarify, are you thinking of adopting U.K. "non dom" status? Because I don't see how your idea would work if you're thinking about standard U.K. tax residence unless your non-U.K. source income is zero or low. Your total worldwide income would still be reportable to HMRC under traditional, full U.K. tax residency.

The U.S.-U.K. tax treaty is very likely to say something about this income, by the way, so make sure you've taken a look at that. If, for example, the treaty says it's U.S. tax exempt then you'd still report the income, but you'd report it via IRS Form 8866. And be careful because the treaty might not allow a "dual residency" approach.
 

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Discussion Starter · #3 ·
Thanks for your reply.
My US income is indeed very low at the moment (such that I'm below the tax paying threshold).
And my UK income has been zero, other than this pension payout.
Since money is tight, I'm just trying to claim as much of the withheld tax as possible...
 

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In that case I think you're probably onto something. I'd just make sure that your non-U.K. source income is truly low within the relevant U.K. tax year before you decide to be a U.K. tax resident. That non-U.K. source income will be reportable to HMRC (and U.K. taxable) under conventional tax residency, though you can presumably take a U.K. foreign tax credit for any foreign income tax (e.g. U.S.) paid on that income.

On the U.S. side, I'd just check to make sure that income is treaty protected and, thus, whether you can report it via IRS Form 8866. If it isn't, then you'll also have to determine what the tax on the U.S. side will be (if any), though chances are that tax will be much lower than what was withheld in the U.K. especially if your total global income is low. And same thing -- you can take U.S. Foreign Tax Credit if you owe any U.K. income tax on that foreign source income.
 

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You may want to check with someone in the UK about your status. As I understand it, you need to notify the tax authority in the UK ahead of time if you want to change your status - and the fact that you have already received your pension payout may very well complicate the situation. (Especially because there has been UK taxes withheld and remitted to the government already.)

Would also check the tax treaty fairly carefully, as private pensions are normally not included in those exempted from taxation. And the amount of the payout will probably push you into FBAR (i.e. Fin CEN) reporting territory, if only for this year.
Cheers,
Bev
 

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Because I go back and forth between the US and the UK, I’m wondering whether, for this current tax year, to claim being a UK Resident, since my understanding is that as a UK Resident, I can claim a Personal Allowance of £10,600, which would mean I pay no tax... Whereas if I'm not a UK Resident, I have to declare the UK income on my US tax return... which would likely result in me paying tax.
Hi Richard92024,

For your information, you would still be entitled to the UK Personal Allowance as a UK Non-resident assuming that is that you are a British Citizen holding a British Passport.
 

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Taxation of Pension Benefits

I would like to add some comments on Richard’s questions concerning the taxation of his UK pension benefits.

Personal allowance
It is not correct to infer that the UK only grants the benefit of Personal Allowances to residents. For instance non-resident British citizens obtain Personal Allowances. Richard might wish to look at the HMRC website. (I cannot post this link here)

UK taxation of pension benefits
The following is a summary of the UK tax rules applying to Richard’s pension lump sum-
• The UK allows 25% of a money purchase pension to be taken tax free.
• The rules on small pensions allow for the balance to be taken as a single sum, rather than a lifetime annuity. This part is however taxable in the UK.
• As noted above, Richard should benefit from the Personal Allowance.

Double Tax Treaty
Richard should look closely at Article 17 of the double tax treaty. This overrides both UK and US domestic rules. He should carefully check his precise circumstances. However Article 17 paragraph 1 might allow-
• Only the US has taxing rights on the potentially taxable part of the lump sum.
• The US would not tax the 25% element.
 

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Discussion Starter · #9 ·
My apologies for the delay in replying - many, many thanks for the excellent advice.
Just to finalize this issue: I was, indeed, resident in the US for the relevant tax year, and have been advised that my procedure for reclaiming the tax withheld by HMRC is as follows:

Complete the UK/US Double Taxation document to claim the repayment of UK income tax: (Form US-Individual 2002)

Complete the IRS Form 8802, pay the $85 user fee and send it to the IRS in Philadelphia.
This Form requests that the IRS prepares Form 6166, which is the Certificate of US Residency that the IRS will prepare sends internally to HMRC to verify that the client is a US resident.

When the IRS receive the Form 8802 they will send it to HMRC, together with the Form 6166 confirmation of the client’s US residency.
 

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Discussion Starter · #10 ·
Well, change of plan... I called and spoke to someone at HMRC in the UK.
Since I have already had tax deducted by the pension company, and sent to HMRC, apparently I need to use Form R43 to claim the tax back.:juggle:
 
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