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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Lev.....I am confirming what you said below to be accurate.

Customer Question

Hi Lev.....I am confirming what you said below to be accurate. Do you have an article or section from the Treaty to confirm this? I cannot specifically verify this and want to show the taxpayer. In addition I understand that they can request not to have taxes withheld in UK and don't have to pay taxes on this income. Correct?
Expert: Lev replied 3 years ago.
LEV :
Hi and welcome to Just Answer!
Please see for reference IRS publication 901 - www.irs.gov/pub/irs-pdf/p901.pdf
Pensions paid by, or funds created by, the United Kingdom, its political subdivisions, or local authorities for services performed for the United Kingdom are exempt from U.S. income tax unless the recipient is both a resident and citizen of the United States.
So - as long as you are a resident in US and an US citizen - UK pension is taxable for you. You will report that pension on the form 1040 line 16a, and on the 16b - www.irs.gov/pub/irs-pdf/f1040.pdf
Sorry if you expected a different answer
Read more: http://www.justanswer.com/tax/5zwzp-taxing-uk-pension-lump-sum-distribution-i-us-resident.html#ixzz3qYRGDP3j
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Hi and welcome to our site!

Taxation would be different depending whether you request a limp sum distribution OR are taking a periodic distribution.

There is a tax treaty between the US and UK which regulates such situations.

See here - page 19

http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/uktreaty.pdf

ARTICLE 17 Pensions, Social Security, Annuities, Alimony, and Child Support

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

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 that would be exempt from taxation in that other State if the beneficial owner were a resident thereof shall be exempt from taxation in the first-mentioned State.

2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.

So - when we are are talking about US pension

-- periodic distributions are NOT taxed in the US and are taxed in UK where you are a resident.

But lump sum distribution is taxed in the US and not taxed in the UK.

Please be aware that you specifically need to claim tax treaty benefits.

If that distribution is taxed in the UK - following rules apply

http://www.hmrc.gov.uk/manuals/eimanual/EIM74500.htm

Taxable pension income Section 575 (as amended by IT(TOI)A 2005) provides that the taxable amount of a foreign pension is 90% of the actual amount arising in the tax year unless the income is charged in accordance with Section 832 of IT(TOI)A (relevant foreign income charged on the remittance basis). As foreign pensions are treated as "relevant foreign income";, Chapters 2, 3 and 4 of Part 8 IT(TOI)A respectively provide for claims to remittance basis, deductions and reliefs and unremittable income. These Chapters contain the rules that formerly applied to Case V of Schedule D.

Any questions?

Expert:  Lev replied 1 year ago.

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