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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1923
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I will be getting a divorce settlement , then returning to

Customer Question

I will be getting a divorce settlement , then returning to the UK after living in the us for 14 years,
Will I have to pay tax in the us on the settlement before I transfer the money to UK to restart my life . Do you know if I will be charged tax on the money in UK
We are talking about one hundred & twenty thousand dollars
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

Hi

Anne :

Thank you for using justanswer

Anne :

Generally, if the settlement does not include alimony (which is taxable to the recipient) any of your spouse's PRE tax retirement, then it is not taxable.


 

Customer: Hi
Anne :

hi

Customer: Can you answer my questions
Anne :

Are you getting alimony?

Anne :

Maybe if you just told me what you were awarded in the divorce

Customer: I will if I agree to settlement as yet no
Anne :

ok......what is in the settlement for you?

Anne :

before we get too far, I wanted to be sure to give you this link too:

Customer: I have not been awarded anything yet . I am trying to work out the best way to go with my lawyer. She does not have tax info and we are having trouble getting simple answers on tax
Anne :

ok......I REALLY want to help you.......but we are at opposite ends.........I generally see people that are either already divorced, OR asking if a SPECIFIC item is taxable

Anne :

with a little patience on both of our parts, I think I can help you

Anne :

ok>

Anne :

can you start by asking what you think is a yes/no question?

Customer: I have not been awarded anything yet , my lawyer cannot advise on tax questions
Anne :

ok........let me hit some high points, ok?

Anne :

Before I do............you have to know that you can come back here an post as many follow up questions as you (or your attorney) need.......ok?

Anne :

Taking the Pub I referenced above might be a good way for your attorney to start...........generally property settlements between husband and wife incident to divorce are not taxable.......but of course, there are exceptions

Customer: Do you pay tax on divorce settlements and alimony
Anne :

if you are awarded alimony, then that will be taxable .........since you are going back to the US you probably don't want to mess with alimony

Anne :

If you get awarded some of your soon to be ex's PRE tax retirement, then you must pay tax on the $ amount that you receive, but no 10% penalty refer your attorney to the QDRO instructions in pub 504

Anne :

I can give you a page # XXXXX a second

Customer: I am leaving us I'm British born but us citizen
Anne :

refer her to page 17 of the pub for lump sum from your ex's pre tax retirement fund

Anne :

will your divorce be final before 12/31/2013?

Customer: No
Anne :

Ok....do you have any children?

Customer: Grown up
Anne :

over age 24?

Customer: Yes
Anne :

ok do you have any earned income....W2, self employment?

Customer: Yes I am up to date on my taxes and will file jointly one more time before divorce is final
Anne :

Where did you come up with $120,000? What (I know this is roughly) but what did you use to arrive at that number

Anne :

good, I'm glad you knew to file joint

Anne :

figuring your filing status had to come first

Customer: That is his offer from his government retirement which he can take loans from
Anne :

ok.......do you 2 own property together?

Customer: Yes but no equity
Anne :

As long as he's taking a loan NONE of that $120,000 is taxable to you

Anne :

now you just have to decide if its fair and equitable

Customer: Even if I am transferring the money to UK
Anne :

doesn't matter what you do with it..................its your money

Anne :

however, you DO have to decide if you're going to keep your US citizenship

Customer: What about alimony then you mentioned that
Anne :

Alimony is taxable income........which would make it necessary for you to file a US tax return......

Anne :

give me a second please

Anne :

I need to cross reference before I say more

Customer: Why ? I only became citizen last year and my 27 yr old son will stay here I am going back to look after my 79 yr old mother it does not mean I won't come back in a few years
Anne :

sorry........just 1 second

Anne :

because as a US citizen you are required to report, and pay tax on world wide income

Anne :

That would include your US alimony

Anne :

I'm looking at the treaty between US and UK

Anne :

alimony is not specifically mentioned

Anne :

that would be something I would have to spend a little more time with to answer..........and I'm happy to do that for you, since I don't think we will resolve all of your questions tonight

Anne :

Here

Anne :

Here's the link to the treaty

Anne :

http://www.irs.gov/pub/irs-trty/uk.pdf

Customer: Is there a time limit on me being in the UK before I have to give up my citizenship or is it they will expect me to pay tax on money i
Customer: earnI earn in UK
Anne :

ok........this is probably why you never got a simple yes/no.......this is NOT a simple matter..........so, before I upset or confuse you more.......can you hang with me for just a minute, ok?

Customer: Ok
Anne :

Here's what the IRS says.........but please hold comments until I give you the whole picture ok?

Customer: ok
Anne :

Many Americans think because they’re earning money in another country – and paying that country’s taxes – they have no liability when it comes to their home country and that they are not required to pay expat tax USA. That’s totally not the case. You still should file a return with the U.S. every year, whether you have income or not. You are not legally required to do so if you don’t owe U.S. taxes, but it’s an important preventative measure as there is a Statute of Limitations on tax disputes. If there is a dispute over back taxes, you start running out the clock on the Statute of Limitations if you file. If you don’t, the IRS can conduct a personal audit at any time in the future and you’ll be liable if they decide against you.


The IRS provides a tax guide for citizens living abroad, this can be found here. There are also some basic facts you need to know about taxation in 2012.

Anne :

Now.......

Anne :

exclude up to $97, 600 of foreign wages from taxation by the IRS once you have lived in the UK for 330 days in 12 months

Anne :

so............the IRS says you have to report and pay tax on all of your income EXCEPT your foreign earned income.........and.........your divorce settlement (if he takes a loan to pay you) and except what is treatied out

Anne :

if you're totally confused.............that's ok.........I know how confusing this is.....because I actually PREPARE all of these returns in my district

Anne :

sometimes I have to sit back and read something over and over to make sure I REALLY understand what I am reading

Customer: So you are saying when I work in UK I do not owe us tax
Anne :

you won't owe if on your wages....but........you will have to file a US tax return with the proper form


Form 2555 - Internal Revenue Service

Anne :

EVERY year

Anne :

that you remain a US citizen

Anne :

what's your first name?

Customer: Lynn
Anne :

Hi Lynn

Anne :

I get the feeling we're going to know each other fairly well before this is all over

Anne :

It's complicated

Anne :

and I don't really know how to make it UNCOMPLICATED

Anne :

but I will try

Anne :

unless you give up your U\

Anne :

sometimes I don't like this chat room.....

Anne :

unless you give up your US citizenship, you will have to file a US return EVERY year proving you do not owe US tax on your wages, bank interest, etc.

Anne :

however, you will owe tax on US paid alimony

Anne :

If you give up your US citizenship........(and I will reference the proper forms if this is what you decide you want to do) I need to find out about alimony paid to non US citizen in UK......and I WILL find this out

Anne :

Just can't put my fingers on it tonight

Anne :

are you still with me?

Customer: Yes
Anne :

Did what I just typed help?

Customer: Yes but I would like to keep my citizenship it was hard to get
Customer: Sorry I keep going trying to get as. Much info , have conference call with lawyer in the morning
Anne :

that's ok........you don't need to make any changes right now........you just need to know that you will need to file a US tax return every year

Anne :

and that you CAN become an "expatriot" (non US citizen) later if you so choose

Anne :

and I'm trying to squeeze in as much information to you as I can\

Anne :

however, she will probably want some additional information, and that

Anne :

thats fine\

Customer: How do you do that from UK will they send forms or will I have to come back
Anne :

SOMEONE can file your return

Anne :

either in person (there's probably someone in UK that knows how)

Anne :

or you can upload your docs to a tax pro in the Us

Anne :

and the US tax pro can prepare your US tax return

Customer: This is so we can decide if the settlement is fair or if it should be higher to avoid tax by not taking alimony
Anne :

exactly

Anne :

you can bookmark this page if that helps

Anne :

you're very quick Lynn

Anne :

that's a good thing

Customer: Thank you for your help ,can I reach you again if more questions arise
Anne :

absolutely.........just come back here and post your question

Anne :

the system will let me know that you have posted\

Customer: Should I pay now
Anne :

If you could make your "lock" for me about 8 hours (you won't have to wait that long......I check in alot) but that would help me

Anne :

I'm preparing for an open house on Sunday for my husband's birthday

Anne :

lot going on

Anne :

you may pay now, or when we're all done...........you're choice

Anne :

I will come back and answer your questions either way

Anne :

if you can't lock the question ...........you may either tell any other experts that you're waiting for me specifically, or you may begin to work with them...........it is your choice (I say this because I promise you I won't be up at 8AM)

Anne :

by 10.........but not 8

Anne :

its my off season.........lol

Anne :

and I got the impression your chat with your attorney will be early?

Customer: Talking 9 am sorry what's lock mean
Anne :

it means that I have a certain amount off time to answer your question.......and during that time, other experts are not supposed to be able to access your question..............

Anne :

its a way to not have to explain everything twice

Customer: Ok good luck
Anne :

Please remember to have your attorney reference


Publication 504, Divorced or Separated Individuals

Anne :

I was going to tell you good luck..........lol

Anne :

You're the one that matters now

Customer: If I pay now do I pay again when I come back?
Customer: thats last question
Anne :

no... your follow up questions are free.........they will ask if you want to leave a bonus, and that's totally up to you

Anne :

I will give you the same service regardless

Anne :

Is your head spinning?

Anne :

or do you feel like you have a better handle on things

Anne :

a better understanding

Customer: Yes goodnight
Anne :

goodniht

Anne :

night

Anne :

sigh

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1923
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 4 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Will the lump sum settlement be taxed in the UK or do you know how I could find out. I need to know how much I will have to purchase a home
Expert:  Anne replied 1 year ago.
Hi Lynn

Here I am, up before 8, basically because my dog woke me up.........

We have a UK tax category that would be able to answer that for you

You may post your question there and they can help you
Customer: replied 1 year ago.
Morning
How do I reach that site
Expert:  Anne replied 1 year ago.
I've never seen the customer side of this....so this time you'll have to be patient with me.

When you posted your original question...........how were you able to choose the "tax" category?.......
Customer: replied 1 year ago.
Sorry I can't remember
I have tried to go back to start again, but it won't let me unless I log out and start again
Expert:  Anne replied 1 year ago.
Ok..........here's an alternative plan.....

They don't need to see this side of your question, since we're dealing only with US tax issues........however, when we're done, you can post a separate question asking about the UK ramifications (if any) and I can request that your question be moved to the UK tax category..........we have to move questions from our category to the correct category almost every day, so that part won't be a big deal for me........if that's acceptable to you
Customer: replied 1 year ago.
Yes that's fine
Expert:  Anne replied 1 year ago.
Then we have a plan........

Good luck with your attorney today..........(and yes, I'm planning on going back to bed for a few hours..........) but I will check in as soon as I get up..........
Customer: replied 1 year ago.
Tried IRS web site no joy so far
Customer: replied 1 year ago.
Cannot get answer from IRS cannot get trough wited in line 40 minutes then cut offI just need this one question answered Will the UK tax me when I transfer the divorce settlement.I have tried local IRS office , main IRS I don't know what else to do
Customer: replied 1 year ago.
Any joy your end
Expert:  Anne replied 1 year ago.
Hi Lynn

How can I help you?
Expert:  Anne replied 1 year ago.
Let's see if I can help put just a little bit of joy in your life


I assume your attorney had some questions?
Customer: replied 1 year ago.
The main one is about if UK will tax my settlement
I have called inland revenue in England to be told they do not take calls from us because of fraud
Tried online no help
Expert:  Anne replied 1 year ago.
Ok........post that question right now, and I'll send it to the UK tax category ...

In fairness I have to tell you that you need to post it as a NEW question, so that they too can be paid for their time.

.I would suspect that you would hear from them in short order
Expert:  Anne replied 1 year ago.
I was able to find this much for you at this web address:

http://www.hmrc.gov.uk/manuals/eimanual/EIM74010.htm


EIM74010 - Pension paid to former spouse


As part of a financial settlement on divorce the courts can make:


  • an attachment order, or
  • a pension sharing order

in respect of the pension rights of either partner.

You need to be aware of the statutory provisions that govern the financial settlement between former partners in order to establish who is to be charged on a pension.

Attachment orders: Pensions Act 1995

An attachment order allows the courts to order the payment of maintenance from a pension receivable by one of the partners. When the member of the pension scheme becomes entitled to receive payment, the scheme trustees pay the amount specified in the order directly to the ex- spouse.

The pension remains the income of the scheme member and:


  • he or she is chargeable to income tax on the whole amount and
  • no deduction is available for the amount paid under the attachment order.

The pension received by the non-scheme member ex-spouse is tax-free in his or her hands. An attachment order may also be referred to as an earmarking order.

 

If I read this correctly, it would have been the owner of the retirement pension who would pay tax if he/she had to give some of it to their ex

 

Run that by your attorney and see if he/she reads it the same way...........

 

 

Expert:  Anne replied 1 year ago.
Thank you very much for the accept and the excellent rating!

Please feel free to ask for me by name if I can help you in the future.

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Anne
Anne
Master Tax Preparer
1904 Satisfied Customers
Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses