US Citizen/Residents Receiving a UK Pension; Taxable in the US or Not?

Forum|Forum|7 years ago
April 26, 2019
2 replies
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Hi,

I'm a US Citizen & reside in the US. I worked in the UK & will shortly be eligible to receive a UK Private Pension while I'm still working in the US. There will be an approximate 5-10 year period when I'll be in receipt of my UK pension & still working in the US.

The UK Pensions system does NOT deduct tax on pension payments since it is a different model. However I'd be bringing this into the US as I had all my UK bank accounts closed without my consent (allegedly due to some anti money laundering law) so I can't keep it off shore.

I keep seeing "Tax Treaty" being mentioned whereby a foreign country has a bilateral agreement with the US to treat income in the manner where it's earned rather than where it's paid out to. But cannot find a definitive answer only some suggestion that if I were RETIRED in the US & I'd probably not pay tax on it. However I'll still be working, so while I'd fall under UK tax code as "RETIRED" (hence paying no tax) under US law I'm still "EMPLOYED" making it complicated.

Is anyone in the same boat as me & have the answer? I can't find anything that covers my situation.

N

NCPERSON1

do any of these documents help?

https://www.irs.gov/businesses/the-taxation-of-foreign-pension-and-annuity-distributions

see article 18:

https://www.irs.gov/businesses/international-businesses/united-kingdom-uk-tax-treaty-documents

(1) Subject to the provisions of paragraph (2) of Article 19 (Government Service), any pension in
consideration of past employment and an annuity paid to an individual who is resident of a Contracting
State shall be taxed only in that State

sounds like this means that you are to pay taxes to the US and not the U.K. as you are a resident of the US (a "Contracting State") I don't see anything in that sentence that suggested 'retired', only a pension in consideration of 'past employment'.

does any of this help?

K

KnoydartAuthor

Employee

Hi NCPerson.

The link the WE8Ben is confusing, the instructions say to use this form, but then the actual form says to use a W9 & there's no place to properly report it there.

As for the Tax Treaty link Article 17, section 1, b, this would sugest that if a UK pension is considered nontaxable in the UK then the UK-US Tax Treaty would mean it wasn't taxed in the US. However.....this is only what I THINK it means, I've not found anything that actually states it clearly & I've still no clear idea of where to report it & how to avoid paying taxes I'm not required to pay.

N

NCPERSON1

I've read Article 17 of the 2001 treaty.

the treaty is set up so that the same income stream is not taxed by both countries. Look at the very first page of the 2001 treaty document.

it is very clear in Article 17 paragraph 1a, that the pension is taxable only in the country based on where you reside;l both countries will not tax you:

1. a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State

paragraph 1b is just saying that even though both countries have agreed that the pension payment is taxable, if one country decides it's NOT taxable if you are residing there, then it's not taxable THERE but doesn't cause it to be tax-free in the other country. So let's say the UK decides it's not taxable in the UK if you were living there, that doesn't mean it's not taxable in the US if you are living there!

As a US citizen, the US taxes your worldwide income that would include pensions received from working in other countries so it makes sense the US would ensure the treaty was worded this way.

i've tried to parse out paragraph 1b so it makes sense

b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in the other Contracting State (this means the UK since that is where the pension was established) that would be exempt from taxation in that other State (since the word 'that' is used, it's still referring to the 'other Contracting State', the UK) if the beneficial owner were a resident (so this applies if you were still living in the UK) thereof shall be exempt from taxation in the first

meantioned State (that first mentioned state is the UK because that is what was mentioned first in this paragraph)

why do you think that the UK pension is not taxable in the US? it very well could be that the UK pension is not withholding UK taxes because it knows you are residing in the US and by treaty, it's not taxable to the UK but only taxable in the US. As noted the US taxes its citizens on their world wide income so even if the UK wouldn't tax it (for whatever reason) doesn't mean the US wouldn't tax it.