Expat Forum For People Moving Overseas And Living Abroad banner

1 - 20 of 21 Posts

·
Registered
Joined
·
14 Posts
Discussion Starter · #1 ·
I'm a dual US/UK citizen and moved back to the UK permanently. I'm retired and receive Social Security and a company pension from the US as well as UK State Pension. I want to retain my US citizenship so from some posts I've read on this forum it looks like I will have to pay my taxes in the UK on everything and then claim a Foreign Tax Credit from the IRS. No witholding tax is taken from my Social Security but I get $125 a month taken from my company pension. I contacted the administrators of this pension to stop the witholding but they told me since I now have a UK address I can't do it online or over the phone. They advised me to fill in a Form W-8BEN but when I downloaded this from the IRS site I saw that I can't use it if I'm a US citizen. It tells me instead to use Form W-9. Looking at that form I see I can only enter a US address. Anyone familiar with this situation? Maybe I can enter my UK address in the "City, state and ZIP code" line.
 

·
Registered
Joined
·
1,021 Posts
I'm a dual US/UK citizen and moved back to the UK permanently. I'm retired and receive Social Security and a company pension from the US as well as UK State Pension. I want to retain my US citizenship so from some posts I've read on this forum it looks like I will have to pay my taxes in the UK on everything and then claim a Foreign Tax Credit from the IRS. No witholding tax is taken from my Social Security but I get $125 a month taken from my company pension. I contacted the administrators of this pension to stop the witholding but they told me since I now have a UK address I can't do it online or over the phone. They advised me to fill in a Form W-8BEN but when I downloaded this from the IRS site I saw that I can't use it if I'm a US citizen. It tells me instead to use Form W-9. Looking at that form I see I can only enter a US address. Anyone familiar with this situation? Maybe I can enter my UK address in the "City, state and ZIP code" line.
As the company pension is US source income and you're a US citizen, presumably the US has primary taxing rights on the company pension. When you report the income on your HMRC self-assessment you should be able to claim foreign tax credit for the US tax paid.

The SSA pension is taxable by the UK only - US/UK DTT 17(3), protected from the Saving Clause. UK State Pension likewise.
 

·
Administrator
Joined
·
50,434 Posts
You should be able to enter your UK address on the W-9 form. Just adapt the spaces as you have to to fit in your address. The W-9 form doesn't go to the IRS in any event - it's a form the "financial institution" that handles your private pension is supposed to have to justify however they are doing your pension payments. (If you aren't a US citizen, they may have to withhold a flat 30% - either per their company policy or to keep the IRS happy.)
Cheers,
Bev
 

·
Registered
Joined
·
14 Posts
Discussion Starter · #4 ·
Thanks. I'm not sure about this, but I think because of the tax treaty between the US and UK I pay my taxes to the country I'm resident and domiciled in. When I lived in the US I always paid tax on my UK state pension to the IRS.
 

·
Registered
Joined
·
14 Posts
Discussion Starter · #5 ·
I think you're right Bev, that seems the best way to go. I'm so glad I found this site.....I think I'm going to need it over the next year or so. I filed my return with the IRS for 2016 since I didn't move back to the UK until Nov. 2016 but it looks like the UK tax year ends on April 5th so I may have to pay HMRC tax for Nov and Dec.
 

·
Registered
Joined
·
1,021 Posts
Thanks. I'm not sure about this, but I think because of the tax treaty between the US and UK I pay my taxes to the country I'm resident and domiciled in. When I lived in the US I always paid tax on my UK state pension to the IRS.
The UK State Pension falls under Article 17(3) of the treaty, which is protected from the Saving Clause. A US company pension would come under Article 17(1) of the treaty, which is not protected from the Saving Clause. Good luck to your elbow if you can get the withholding stopped or reduced to zero; if not, you'll need to try for tax credits either from the UK or (if you re-source the pension to the UK), from the US.

According to https://www.irs.gov/publications/p54/ch02.html:
Withholding from pension payments. U.S. payers of benefits from employer-deferred compensation plans, individual retirement plans, and commercial annuities generally must withhold income tax from payments delivered outside of the United States. You can choose exemption from withholding if you:

* Provide the payer of the benefits with a residence address in the United States or a U.S. possession, or

* Certify to the payer that you are not a U.S. citizen or resident alien or someone who left the United States to avoid tax.
 

·
Administrator
Joined
·
50,434 Posts
Thanks. I'm not sure about this, but I think because of the tax treaty between the US and UK I pay my taxes to the country I'm resident and domiciled in. When I lived in the US I always paid tax on my UK state pension to the IRS.
It varies by tax treaty and it varies according to whether it's a "government" pension or a private pension. Safest bet is to take a look at the tax treaty itself. The US only makes the treaties available in all their separate parts. But check the UK tax authority website to see if they have a consolidated version of the treaty. Pension matters usually fall somewhere around Articles 18 - 20.
Cheers,
Bev
 

·
Registered
Joined
·
1,021 Posts
It varies by tax treaty and it varies according to whether it's a "government" pension or a private pension. Safest bet is to take a look at the tax treaty itself. The US only makes the treaties available in all their separate parts. But check the UK tax authority website to see if they have a consolidated version of the treaty. Pension matters usually fall somewhere around Articles 18 - 20.
Article 17 (19 for Government pensions, which have special treatment).
https://www.gov.uk/government/publications/usa-tax-treaties

The Foreign Notes (https://www.gov.uk/government/uploa...achment_data/file/604126/sa106-notes-2017.pdf) give guidance on when Foreign Tax Credit can be claimed:
Foreign Tax Credit Relief

If you’ve paid tax in another country on your overseas income you can claim Foreign Tax Credit Relief (FTCR) if:

• you’re a UK resident

• the foreign income was properly charged under that country’s law

• the amount of FTCR doesn’t exceed UK tax on the same item of income or gains

• there’s a double taxation agreement (DTA) and foreign tax relief is restricted to the minimum foreign tax payable in the agreement

If no DTA exists, or the agreement doesn’t cover that particular foreign tax, relief is only available if the tax matches UK Income Tax or Capital Gains Tax.[/B]

A DTA is an arrangement to avoid taxing the same item twice. If a DTA is in place, check how its terms apply to you. If the agreement doesn’t give the other country or territory the right to tax the income, you can’t claim FTCR and must claim relief in the other country.
The tricky bit, as always, is the Savings Clause. That clearly gives the US the right to tax a US-source company pension paid to a US citizen resident in the UK, but UK tax relief may or may not be available. If the OP can't get UK tax relief, re-sourcing is the other possible solution, as per the Notes quoted above.

Personally I would ring HMRC (0300 200 3300) and ask whether FTCR would be allowed. But probably not on a Saturday. :D
 

·
Registered
Joined
·
340 Posts
... you'll need to try for tax credits either from the UK or (if you re-source the pension to the UK), from the US.
It is the second of these that is the correct course. The UK has primary taxing rights under the tax treaty; the savings clause override operates afterwards. 'Re-source' the US pension to the UK using form 1116, then.

As far as I can tell, no treaty form 8833 is needed alongside this (because it falls into the form 1116 'Certain Income Re-sourced by Treaty' bucket), but for an extra 15mins work I'd be inclined to throw one in anyway.
 

·
Registered
Joined
·
14 Posts
Discussion Starter · #10 ·
" 'Re-source' the US pension to the UK using form 1116, then."
What does "re-source" mean exactly? Does that mean having it direct deposited into a UK bank rather than a US bank? Sorry if I'm thick, I am concerning this stuff.
 

·
Registered
Joined
·
1,021 Posts
" 'Re-source' the US pension to the UK using form 1116, then."
What does "re-source" mean exactly? Does that mean having it direct deposited into a UK bank rather than a US bank? Sorry if I'm thick, I am concerning this stuff.

You're not thick, it just is totally irrational. US tax gets withheld, then you claim it back. End result: you're lending the US $125 a month on a rolling, interest-free basis.

Certain Income Re-sourced by Treaty

If a sourcing rule in an applicable income tax treaty treats U.S. source income as foreign source, and you elect to apply the treaty, the income will be treated as foreign source.

You must figure a separate foreign tax credit limitation for any such income for which you claim benefits under a treaty, using a separate Form 1116 for each amount of re-sourced income from a treaty country. See sections 865(h), 904(d)(6), and 904(h)(10) and the regulations under those sections (including Regulations section 1.904-5(m)(7)) for any grouping rules and exception.
https://taxmap.ntis.gov/taxmap/ts0/certainincomeresou_o_079b0234.htm
 

·
Registered
Joined
·
340 Posts
" 'Re-source' the US pension to the UK using form 1116, then." ... What does "re-source" mean exactly?
"Re-sourcing" is just a silly technical term invented by the US to get round the issue of having to provide a 'foreign' tax credit for essentially 'non-foreign' (that is, US) income. All part and parcel of the contortions that the US has to go through to make its nonsensical and overbearing citizenship-based taxation work across the entire planet.

You're not being thick by not getting this straight-off. Not at all! Sorry, I should have included an explanation earlier.

All re-sourcing means is: "pretend that this income came from the UK and not the US, and then proceed accordingly." By pretending that (some of?) your US pension payment is a UK pension you can then claim a US 'foreign' tax credit.

Publication 514 has a few examples and (what the IRS passes off as) an explanation of re-sourcing.
 

·
Registered
Joined
·
14 Posts
Discussion Starter · #13 ·
Thanks. What a quagmire I've walked into. The amounts in these pensions aren't really a lot but it looks like it might cost me a lot to sort it out through a tax adviser here in the UK. It was so much easier in the US......I paid tax on all three pensions to the IRS and nobody complained. I have a feeling I'll be paying more tax in the UK than the US too.
 

·
Registered
Joined
·
1,021 Posts
Thanks. What a quagmire I've walked into. The amounts in these pensions aren't really a lot but it looks like it might cost me a lot to sort it out through a tax adviser here in the UK. It was so much easier in the US......I paid tax on all three pensions to the IRS and nobody complained. I have a feeling I'll be paying more tax in the UK than the US too.
It was easier in the US because your two cross-border pensions were being paid by the UK, which doesn't do "citizenship-based taxation."

Now you're in the UK, your one cross-border pension is being paid by the US, which does.

Renunciation of US citizenship ($2350 plus some form-filling and a visit to Grimsnor Square) would allow you to stop the US withholding and pay tax only to the UK. Might be worth considering. :)

I should think you could probably do the re-sourcing without needing to pay an accountant. Try running your figures through one of the tax packages (Taxact, etc) to see how they do it, then you can use that as a model.
 

·
Registered
Joined
·
14 Posts
Discussion Starter · #15 ·
Good suggestion about the tax packages. One last thing and I'll let you go (for now!!!)......I have to go myself. I filed with the IRS for 2016. I think their tax year is Jan-Dec right? I became a resident of the UK in Dec. but it looks like the UK tax year is from Apr. 5th- Apr. 5th. Am I right in thinking I have to file with HMRC for Dec.- Apr?
 

·
Administrator
Joined
·
50,434 Posts
Good suggestion about the tax packages. One last thing and I'll let you go (for now!!!)......I have to go myself. I filed with the IRS for 2016. I think their tax year is Jan-Dec right? I became a resident of the UK in Dec. but it looks like the UK tax year is from Apr. 5th- Apr. 5th. Am I right in thinking I have to file with HMRC for Dec.- Apr?
Yup. The offset between the two tax years is something all US citizens living in the UK have to get used to. The first year is the worst - then it falls into something of a dull routine.
Cheers,
Bev
 

·
Registered
Joined
·
1,021 Posts
Good suggestion about the tax packages. One last thing and I'll let you go (for now!!!)......I have to go myself. I filed with the IRS for 2016. I think their tax year is Jan-Dec right? I became a resident of the UK in Dec. but it looks like the UK tax year is from Apr. 5th- Apr. 5th. Am I right in thinking I have to file with HMRC for Dec.- Apr?
Once you've registered for Self-Assessment on the HMRC website (https://www.gov.uk/log-in-file-self-assessment-tax-return), you can do your return for the tax year ending April 2017 online. Very easy. The US company pension, and the SSA pension get reported on SA106. You can download SA106 and the Notes from https://www.gov.uk/government/publications/self-assessment-foreign-sa106, and send it as an amendment to your return. Or ring and ask for a hard copy, if you prefer.

The deadline for filing the return is 31/01/18; the deadline for the SA106 amendment is 31/01/19 if online, or 31/10/18 (I think) if filing the SA106 hard-copy by post. Check those dates, don't rely on my memory! :)
 

·
Registered
Joined
·
14 Posts
Discussion Starter · #19 ·
Thanks, I've done those things, except fill in the form and mail it. I want to digest most of the stuff I'm learning from the kind, and smart, people on this forum. Have a great day.
 

·
Registered
Joined
·
1,021 Posts
It was easier in the US because your two cross-border pensions were being paid by the UK, which doesn't do "citizenship-based taxation."

Now you're in the UK, your one cross-border pension is being paid by the US, which does.
Should have said:

It was easier in the US because your one cross-border pension [the US State pension] was being paid by the UK, which doesn't do "citizenship-based taxation*".

Now you're in the UK, your two cross-border pensions [the SSA pension and the company pension] are being paid by the US, which does.
Both countries concede taxing rights on cross-border social-security pensions to the country of residence, which is why your two social-security pensions [SSA and UK State pension] were taxed by the US when you were US-resident, and will be taxed by the UK now you're UK-resident


* Or taxation-based citizenship, as I've seen it called on another forum.
 
1 - 20 of 21 Posts
Top