# How to figure out the value of your pension



## sueinwales (Oct 4, 2017)

Hello!
Now that i have acquired UK citizenship, i am seriously looking into renouncing my US nationality. My first step is to try and figure out whether I would be a covered expat (hope not). I notice there is a line on the form for foreign pensions, but i haven't got the faintest idea how to arrive at an amount for this.

I have a defined benefits pension from the Local Government Pension Scheme here in the UK, and also receive the UK State Pension (Social Security Pension).

I am also one of several beneficiaries of an American family trust. So would I just record my pro-rata portion of the asset? Eg if 3 beneficiaries, divide the capital by 3?? I am able to receive distributions upon the discretion of the Trustee, but will never 'own' the principal. (Generation skipping trust, eventually my portion will be distributed to my children).

Any advice gratefully received.
Sue


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## Bevdeforges (Nov 16, 2007)

You really don't need to mess with the tax and "covered expat" portion of all that until well after you have renounced. The defined benefits pensions don't figure into the net worth calculation at all (once you start receiving benefits, it counts only as pension income - and that you wouldn't normally declare on your US forms anyhow - at least most folks don't). For net worth, the only pensions that count are things like IRAs or other savings-based pensions.

The family trust is the only "touchy" part - if it's your only US based financial asset, I'd either just not worry about it, or contact the trustee to ask what they think they would "need" to do. Ultimately, you send them a W8-BEN plus a copy of your renunciation certificate and they would then have to withhold NRA rates - i.e. 30% flat for taxes. Your renunciation doesn't affect the status of your children, who remain US citizens.

But the threshold for being considered a "covered expat" is pretty high - and the form you send in after renouncing to determine/document your status allows you to use "estimates" for most of the numbers they want you to report. In many cases, those who renounce never get around to sending in the forms anyhow. It doesn't seem to be a big deal as long as you have no US based financial assets.


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## JustLurking (Mar 25, 2015)

sueinwales said:


> I have a defined benefits pension from the Local Government Pension Scheme here in the UK, and also receive the UK State Pension (Social Security Pension).


There is an article here from the ever-reliable Phil Hodgen that describes how to value a defined benefits pension scheme -- which is what the UK LGPS is -- for exit tax purposes:

Pension Valuation for the Net Worth Test - HodgenLaw PC

Spoiler: you probably have to treat it like an annuity, and come up with a lump-sum value that would produce an equivalent income stream. Predictably, of course, there is absolutely no IRS guidance on any of this stuff. And on state pensions, again from Phil Hodgen:

Why Social Security does not go on the Form 8854 balance sheet - Hodgen Law PC

As for your trust, not my area at all, but I would note that the "30% flat tax" that Bev mentions upthread may well be reduced or even entirely eliminated for UK residents who are not US citizens by something in the US/UK tax treaty. A close read of this seems well worthwhile.



Bevdeforges said:


> You really don't need to mess with the tax and "covered expat" portion of all that until well after you have renounced.


True. However, I suspect the OP wants to gauge the potential financial damage of renouncing their US citizenship, so as to compare it with the financial damage of not renouncing, or of delaying renunciation.

For example, even if not currently a 'covered expatriate', they could be just one expected (and likely) inheritance away from becoming a 'covered expatriate'. Or, some other situation that argues for acting sooner rather than later. (Although, the political risk of congress worsening the 'exit tax' further in future always argues for that anyway.)

Worth noting that as of mid-December 2020, the US Embassy in London is still closed for renunciation appointments. US citizens in the UK have been effectively prevented from renouncing their US citizenship since the end of March 2020. There is no indication of when or even if this service will resume.


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## Bevdeforges (Nov 16, 2007)

Good point about the US-UK tax treaty. I keep forgetting that the UK is one of those countries that retains the right to tax US pensions (well, at least US social security) for those resident in the UK. 

The current (i.e. for the year 2020) version of form 8854 is available on the IRS website - and you may also want to have a good read-through the instructions for the form. There is information on a line by line basis, and you may want to have a look at the instructions for lines 9 and 10 which relate to trusts and how to report them. (It bears mentioning that there is nothing specific for lines 6 and 7 which simply say "Pensions from services performed in the US" and "Pensions from services performed outside the US")

Overall, the big consideration is how close you are or "could be" to the threshold for being considered a "covered expatriate" - if you're substantially under the $2 million level in net worth you can be a bit more cavalier with your reporting and basically the game becomes to prove to them that they have no interest in you.


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## sueinwales (Oct 4, 2017)

Thanks for the replies- really appreciate it. 

Just Lurking, you hit the nail on the head - I do want to gauge the potential financial damage of renouncing citizenship, with the financial damage of not renouncing, or of delaying renunciation. Finding out if i would be a covered expat would seem to be an important factor in all that.

I like Bev's reply to ignore the local government pension, but.....PH seems to take an opposing view.

Thanks very much for the reference to the PH article: I have read it but so far can't make head nor tails of it (but will keep trying). Fortunately, when i retired a few years ago I took the largest lump sum and smallest pension possible (12K per year) so that should help. I'll try an annuity calculator next, and contact the Trustee in the USA to see if she can provide information about that part. Like so much else regarding the expat financial world, it is all so complicated and hard to get information!

Will also need to summon the fortitude to read the US/UK treaty to see if the 30% tax on trust distributions would apply.
This all seems neverending.........

Sue


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## Bevdeforges (Nov 16, 2007)

I really and truly would NOT include a defined benefit pension as an "asset" in that net worth calculation unless you somehow have claim on some fixed sum of cash at this point. For something like an IRA or 401K, well yes, you are entitled to the balance that is in your fund and so that is part of your net worth (though you do get to reduce the assets by the extent of your liabilities/debts, too). But unless you could change your mind and just take some lump sum now, it's not an asset by definition. (And yes, I am an accountant.)


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## Moulard (Feb 3, 2017)

Bevdeforges said:


> You really don't need to mess with the tax and "covered expat" portion of all that until well after you have renounced.


I disagree. The time to "mess" with it is the day you first consider expatriating. First things first, figure out if you are, in all probability, going to become a covered expatriate, and then plan accordingly.

If you leave it all until after you have expatriated, it is too late to take any preventative action.


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## 255 (Sep 8, 2018)

sueinwales -- No one mentioned it, but you do not own the assets in a generation skipping trust, but have the ability to participate in distributions, as determined by the trustee. Hence, since the assets in the trust do not belong to you -- they are not part of your net worth (and not part of your eventual estate.) In theory, the trustee may never make a distribution to you, leaving the totality to your children and I suspect their cousins. Cheers, 255


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## Nononymous (Jul 12, 2011)

This case is complex because of US assets (pension and trust and all that) and potential inheritance by children, but just a general reminder for others that covered expatriate status is rather meaningless, and any exit tax is not easily collected.


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## sueinwales (Oct 4, 2017)

Thanks for that, 255. Your remarks about the generation skipping trust make perfect sense! My children get a K-1 each year with a page attached labelled 'generation skipping trust' with info, so I guess that trust need not enter my calculations. There is another trust, partitioned into parts (one for me and another for each sibling) . Similarly, distributions are only made at the discretion of the Trustee (at US Trust). The trust document reads that this trust will only be dissolved when I and my siblings are deceased, so that also sounds like a generation skipping trust. So, with any luck, neither of these will need to be a consideration for me. So, with just half of my house here in Wales (husband is British) and possibly my small UK pension it should be clear sailing!

I cannot tell you how very helpful it is to have you all chiming in with useful information. It can be a lonely endeavor trying to figure all this out. I consider myself to be relatively sensible and not easily confused but some of this stuff seems to be written in a foreign language!

This will make it easier to consider my options.


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## Nononymous (Jul 12, 2011)

Again, possibly not relevant to this specific case, but also worth noting that the IRS pays next to no attention to the affairs of those who renounce, according to a US government report.


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## Nononymous (Jul 12, 2011)

Nononymous said:


> Again, possibly not relevant to this specific case, but also worth noting that the IRS pays next to no attention to the affairs of those who renounce, according to a US government report.


That link didn't appear to work. 

Original report here:



https://www.treasury.gov/tigta/auditreports/2020reports/202030071fr.pdf



Discussion here:

http://*****************.ca/2020/11...pport-congresss-attempts-to-create-disincent/


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## Nononymous (Jul 12, 2011)

Nononymous said:


> That link didn't appear to work.
> 
> Original report here:
> 
> ...


On edit:

Oh how silly... there's a ban on mentioning the name of another forum. Insert the text "isaac" followed by "brock" followed by "society" (with no underscores etc.) in place of those asterisks and append ".ca/2020/11/05/u-s-treasury-inspector-general-for-tax-administration-tigta-argues-for-much-better-enforcement-of-tax-rules-for-those-who-expatriate-to-support-congresss-attempts-to-create-disincent/" and it will work.

Really, this ban is a bit juvenile.


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## JustLurking (Mar 25, 2015)

Nononymous said:


> Really, this ban is a bit juvenile.


Indeed. Also, trivial to bypass:

https://isaac-brocksociety.ca/2020/11/05/u-s-treasury-inspector-general-for-tax-administration-tigta-argues-for-much-better-enforcement-of-tax-rules-for-those-who-expatriate-to-support-congresss-attempts-to-create-disincent/


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