# Do UK tax allowances apply in US?



## cj_in_wa_state (Mar 10, 2015)

OK...very specific question.

I left UK 23 years ago. Am now a US citizen.

This year, for the first time, I took two pension distributions in the UK, so need to report this on my 1040 return. However, none of t his money was taxable in UK for two reasons:

1) Some of it was a tax-free (in UK) lump sum
2) The rest was monthly amounts that did not add up to what the UK consider my tax threshold of GBP 10,600 for the year. (The HMRC has given me a 1060L tax code, and I must start doing tax returns in the UK now. (Pah!)

I intend to report this on a 1099-R (self-completed). Is this the right way?

And...can I state that the taxable amount is zero? Since in UK it is zero. Or, do you think that the US government says "tough, you left the UK, you do not get the UK tax allowance"?

Desperate from Washington State (aka Chris)


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## BBCWatcher (Dec 28, 2012)

The only way I can think of it wouldn't be U.S. taxable is if the U.S.-U.K. tax treaty says it isn't (for U.S. citizens), so you have to check that. That said, you might have a Foreign Tax Credit (or Deduction) available to take if it's deferred income that was subject to U.K. tax already, though that's a bit complicated.

No, you wouldn't fill out a 1099-R. That form is for U.S. administrators, not for you. You can save yourself that bit of paperwork. I suppose some tax preparation software might present you with a "virtual" 1099-R to fill out in lieu of an actual one (since U.K. administrators obviously don't issue them), but that's not something you need to file.


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## Bevdeforges (Nov 16, 2007)

First of all, no, UK tax allowances don't count for anything on the US tax forms. But second of all, do check the US-UK tax treaty to see what they have to say on the subject of pensions. United Kingdom (UK) - Tax Treaty Documents (Hint: the "Technical Explanation" is normally quite a bit more readable than the treaty itself.)

As far as the 1099 goes, you may need to "fake" one if you're using tax preparation software - however, since you don't send those in with your tax return anyhow, you should not bother "filing" one with the government. They actually do have to take you word for it on most forms of "foreign" compensation (including income). 
Cheers,
Bev


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## ForeignBody (Oct 20, 2011)

As a US citizen you should not be paying any tax in the UK on your UK pension. Complete Form US-Individual 2002, which goes via the IRS (with a fee) to HMRC. Any UK tax you have paid will be refunded.


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## FFMralph (Dec 22, 2012)

I asked the IRS Email Tax Assistance the same thing. They told me more or less that most foreign private and employer pensions are excluded through the Savings Clause in most tax treaties. Some treaties have been appended for government owned pensions.
This means that for most foreign pensions 100% of the distribution has to be claimed in the U.S. regardless of how the distribution was made or how much was taxed in the host country. Use the FTC to offset any or all of the U.S.tax.


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## Bevdeforges (Nov 16, 2007)

I'd be careful with that generalization. The tax treaties I've actually read (i.e. those that most directly affect me) tend to give taxation rights to the country paying the pension. Though there are outlyers - like in Italy, US Social Security is NOT taxed by the US if it's paid to an Italian resident who has Italian nationality. (And the UK is an exception to the general rule, too, IIRC. At least as far as US Social Security is concerned.)

There may also be significant differences between what the Email Tax Assistance (from the US) tells you and what you'd get in response to the same question posed to one of the local overseas IRS offices. (And unfortunately, the overseas IRS offices are being closed down this year.)
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

You just have to check the treaty, including the savings clause.


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## FFMralph (Dec 22, 2012)

The big problem is the word "pension". Here in Germany we have several pension offers. These include private retirement insurance, employer insurance, private government partially sponsored insurance and of course our social security equivalent. 
The US Email Tax Assistance all of these "pensions" are not recognized as pensions for US tax purpose. But are rather "other income". The exception being the social security equivalent.
Unfortunately, the makeup and structure of these foreign "pensions" are unknown to the IRS. As you stated Bev, we need the overseas office to help determine which "pensions" qualify as pensions.


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## Bevdeforges (Nov 16, 2007)

FFMralph said:


> Unfortunately, the makeup and structure of these foreign "pensions" are unknown to the IRS. As you stated Bev, we need the overseas office to help determine which "pensions" qualify as pensions.


And unfortunately, the overseas offices aren't going to be around much longer. You and I are lucky, in that there are IRS offices in both Paris and Frankfurt and the people there actually know what the German and French pension systems are like. At least they can make a more educated guess as to how to handle them for tax purposes than the folks back in the US. But then again, the IRS agents in the international offices aren't normally subject to local taxes during their rotation abroad, so don't exactly have a "personal interest" in the question.

Come next tax season, we're all on our own.
Cheers,
Bev


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## maz57 (Apr 17, 2012)

Bevdeforges said:


> And unfortunately, the overseas offices aren't going to be around much longer. You and I are lucky, in that there are IRS offices in both Paris and Frankfurt and the people there actually know what the German and French pension systems are like. At least they can make a more educated guess as to how to handle them for tax purposes than the folks back in the US. But then again, the IRS agents in the international offices aren't normally subject to local taxes during their rotation abroad, so don't exactly have a "personal interest" in the question.
> 
> Come next tax season, we're all on our own.
> Cheers,
> Bev


Typical US government/IRS move; as they ramp up offshore tax enforcement via FATCA they are eliminating the pitifully inadequate resources available to hapless US expat taxpayers. No one in Canada will even notice because they didn't have any offices in Canada anyway. So much for all those "services" the apologists for CBT always blather about to justify the taxation of expats.

I have never had any luck getting any useful information out of the IRS help lines (on the rare occasion I was able to even reach a human!) The only questions they are able to handle are the easy ones that no one needs to ask in the first place. The IRS is the last place I would go if I needed some information about the US tax system. Even the IRS employees know that because they advise you to talk to a tax professional. They people on this forum know more about US tax than the frontline IRS folks.

Yet the USG continues to pretend that expats live in the US. How much longer are they going to try to pound square pegs in round holes?


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## BBCWatcher (Dec 28, 2012)

Maz57, let's be very specific in laying blame where due: the Republican Party in Congress. They cut the IRS's funding, despite every tax expert telling them it was one of the stupidest things they could do.

I'm not a big fan of railing against ill-defined targets. There is a clear, culpable party here, with no ambiguity. If you're upset about IRS cutbacks -- and I am -- then there's your political target to blame and, if you wish, to penalize.


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## maz57 (Apr 17, 2012)

Yup, the Republicans did that, no question. They did it because they were incensed about the IRS' targeting of certain right-leaning tax-exempt organizations while giving similar left-leaning groups a pass. Even though it was unquestionably a bad move from a revenue collection standpoint, I can't say I blame them. They wanted to teach the IRS the lesson that the IRS is a tax collection agency and must be politically neutral, not a tool of whatever politicians happen to be in control at the time.

But to get back to the larger question of laying blame, it really lies with Congress for doggedly insisting on CBT even though it flies in the face of common sense and the residence based system every other developed nation has adopted. Then add FATCA to the mix (which is largely a construct of the Obama administration) and considerable blame can be apportioned to the Democrats. Certainly the "expats and their offshore accounts automatically=tax evasion" is mostly a Democratic narrative. Only Congress can fix this mess and that will take smart people on both sides to accomplish. At least some of the Republicans are talking about repealing FATCA or at least fixing some of its more unworkable elements.

I'm not personally upset about these cutbacks because ironically they will probably work to the advantage of US expats. The IRS will simply have fewer resources to devote to expat tax issues. As I mentioned before the cutbacks will make no difference to us Canadians because the IRS never had much of a footprint in Canada to begin with. If I'm going to "punish " anybody at the polls it will be my own Canadian politicians who caved to US threats and signed this IGA abomination.


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## BBCWatcher (Dec 28, 2012)

maz57 said:


> They did it because they were incensed about the IRS' targeting of certain right-leaning tax-exempt organizations while giving similar left-leaning groups a pass.


Except that's not what the IRS did. Factually, they went after such organizations across the political spectrum, and many (perhaps most) were violating the law.

"Targeting" was sending letters of inquiry, by the way. "Tell us why 'Committee to Elect More Politicians' is a tax-exempt charity" -- really just that simple. Nobody was thrown in jail or prosecuted. Some should have been.


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## maz57 (Apr 17, 2012)

BBCWatcher said:


> "Targeting" was sending letters of inquiry, by the way. "Tell us why 'Committee to Elect More Politicians' is a tax-exempt charity" -- really just that simple. Nobody was thrown in jail or prosecuted. Some should have been.


Whatever the IRS did and whatever you call it, it was enough for Lois Lerner to first lose her emails and then later her job. So something happened that was nefarious enough to get the Repubs all riled up. Another one of those "loopholes" subject to creative interpretation that riddle the tax code, perhaps?

Not my problem anymore, though....I don't pay that much attention to the twists and turns of US internal politics since I became a Canadian. Now from the outside looking in it all just looks like the US government.


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## BBCWatcher (Dec 28, 2012)

You're being naive. 

There are good people, including good civil servants, who frequently lose their jobs. Take a look at the case of Shirley Sherrod when you get a chance.

The Republicans got riled up _because the IRS was doing its job_, questioning political organizations (of every character) that were improperly filing for tax exempt status. It's really that simple. The Republicans also get riled up when the IRS audits rich people, as the IRS of course should from time to time. The Republican Party doesn't believe that rich people ought to pay even the _same_ rate of total tax as less rich people, never mind progressive tax rates, so why are you surprised?

This is today's Republican Party. I'm just being entirely factual here. These are the views they hold, and these are the views (and interests) they fight for.


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## Bevdeforges (Nov 16, 2007)

maz57 said:


> Whatever the IRS did and whatever you call it, it was enough for Lois Lerner to first lose her emails and then later her job. So something happened that was nefarious enough to get the Repubs all riled up. Another one of those "loopholes" subject to creative interpretation that riddle the tax code, perhaps?
> .


Seriously, these days it doesn't take much to rile up the Republicans these days. If they don't have a reason to be complete jerks, they'll just do it "for the fun of it." I can't bear the current travesty that is Congress these days.
Cheers,
Bev


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## maz57 (Apr 17, 2012)

Bevdeforges said:


> I can't bear the current travesty that is Congress these days.
> Cheers,
> Bev


Neither can I. Thankfully, as I mentioned earlier, its not my problem anymore because for me the US government, its internal politics, and its tax system are now in my rear view mirror. 

However, the last few years it has become my fate to assist my elderly mother (who is a US resident) do her taxes every spring! Compared to what expats have to put up with, I can tell you that US filing is way easier if you actually live in the US. So much for the notion of treating every US taxpayer the same.

At least I haven't had to totally give up the pleasure of trying to interpret IRS instructions.


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