Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.Per the tax treaty with the UK, you would be taxed in your resident country. If you are resident in the US then that is the country that would tax you. The US does not look at lump sum distributions like the UK does. Just as with domestic pensions or annuities, the US taxable amount generally is the Gross Distribution minus the Cost (investment in the contract). Income received from foreign pensions or annuities may be fully or partly taxable.
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What does "Gross distribution minus the cost (investment in the contract" mean? I read this in the tax treaty and did not understand what it meant. If I understand you correctly, if I take a lump sum I will be taxed on it the US. In that case, will it be taxed as unearned income?
That means that the money you invested in the pension (if any) is not taxable). If your pension is worth $100,000 and you had initially over the years contributed $50,000 then that $50,000 is your cost and is not taxable when you receive the distributions.
This is not always the case because some pensions are not employee contributed pensions. The pensions are paid based on time with the company or service.
Yes, if you receive a distribution form the pension (lump sum or payments) you will need to report that in the US
It is added to your income (not seen as earned income) and taxed at regular rates
This is a government pension based on contributions from my salary, the same of SS in US.
Then you do not have cost in it perse.
So, I am still not clear if I will have to pay tax on a lump sum. This is the government pension (same as SS in the US).
You will be taxed in the US on the lumpsum amount
OK, thanks for the info, very helpful.
You are most welcome. Your positive rating is always thanks enough.