# UK pensions for US citizens



## helendha

Hello All,

Hope I am posting this in the right place!

Hubby and i relocated to the UK a little over a year ago; I am a UK/US dual citizen, hubby is a US citizen.

We both now have full-time work and are looking to start putting some money away for the future (seeing as we cleared out our IRAs to pay for the move!)

My employer offers an employer-sponsored retirement plan and I contribute just enough to this to get my ER match! I'm not worried about this plan as it pretty much meets the US rules as a pension plan and I'm only putting a very small amount into it.

But, I've also re-started monthly contributions to an old pension plan from over 20 years ago which had been sitting around and which (a UK/US tax preparer advised me) is fine for me to put money in - it's not an ISA or a SIPP etc, I can't access the money until i die or reach age 65 or whatever.

My question is - am I supposed to report my contributions on my US tax return? My US tax preparer said 'no' but rather oddly, my Uk tax preparer said yes - and I'm a worrywort.

Also - for my hubby who has never lived in the UK before (and so doesn't have an old pension plan conveniently waiting for him to re-start), can anyone advise if there is a suitable retirement savings vehicle? Unfortunately his employer does not offer any kind of retirement savings plan and I know ISAs etc are a no-go.

Thanks for any help!
Helen


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## nyclon

I'm going to transfer this to the tax forum.


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## Bevdeforges

ISA's aren't really a no-go, although they may complicate your tax situation for the US by quite a bit.

As far as your old pension plan goes, unless it's one of the plans that the IRS recognizes as more or less equivalent to an IRA, your contributions have no relevance on your US tax returns. (Someone who knows more about the UK retirement options will no doubt weigh in here soon.)

The precise requirements are a bit murky, but as long as you make a good faith effort in terms of reporting your retirement investments, you should avoid problems. The basic concept is that the US normally doesn't recognize anything but an IRA or 401K as tax deferred retirement investments. (I.e. where you can deduct contributions made and defer taxes on gains or income in the plan until withdrawal.)

While there are additional reporting requirements for "foreign trusts" and PFICs and the like, the key thing seems to be to report the annual gains as income each year, and then, on withdrawal you should be able to treat it like a savings account (i.e. the withdrawals are not income and thus not taxable). 
Cheers,
Bev


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## DavidMcKeegan

We have a few articles that cover foreign pensions on our website, but the main take away is if the funds weren’t taxed on the front end, they WILL be taxed on the back end.

Generally speaking, foreign pension contributions (including employer) will need to be included in taxable income as they are not qualified pension plans of which contributions may be deducted from taxable income. The gains on the account are deemed taxable to the percentage that remains to be taxed over total investment in the account.

I hope this helps!


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## jbr439

DavidMcKeegan said:


> We have a few articles that cover foreign pensions on our website, but the main take away is if the funds weren’t taxed on the front end, they WILL be taxed on the back end.
> 
> ...


FWIW, an exception to the above is the Canadian RRSP. Contributions are taxed by the US (but not by Canada). Funds grows tax free while in the RRSP. Withdrawals are fully taxed by Canada, but the US only taxes any gain. Used to require an annual election to not have the gain taxed annually by the US, but that is no longer the case.

This US tax treatment may be unique to the RRSP - is it?


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## GregoryN

I have just been through a lot of what you were looking into and got sufficiently frightened by tax on UK Personl Pensions and PFIC's that I went to a UKUS tax accountant.... this is what I received today in the email (I hope this info is not too late for you).
################
I heard back from our tax department regarding your PFIC questions and concerns.

1. The fee estimate does not include any time for PFIC analysis.

2. PFICs held through pension plans are not required to be reported. As long as you hold no PFICs outside the pension plans you do not need to send us any PFIC data and we do not need to analyze it.

3. If you do hold PFICs outside the pension plan, we would need your cost basis in any PFIC shares and number of shares held as of the beginning of the Streamline period as a starting point. If that was available on your broker statements as of the beginning of the Streamline period, or you could otherwise provide it, we could avoid incurring additional cost to analyze your broker statements prior to the Streamline period.


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## BBCWatcher

I assume they meant tax treaty-recognized pension plans and traditional, employer-provided, defined benefit pension plans.


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## GregoryN

We were discussing my pension plans, both of which were Personal Pensions (where I bought units in XYZ Ltd: these plans did not pay distributions or dividends but the units could go up or down in value), and not defined benefits.


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## BBCWatcher

Then I'm not sure how they arrive at their conclusion #2 if this particular pension account does not have its own tax treaty provision.


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## iota2014

GregoryN said:


> We were discussing my pension plans, both of which were Personal Pensions (where I bought units in XYZ Ltd: these plans did not pay distributions or dividends but the units could go up or down in value), and not defined benefits.


Are they unit trusts? I saw a Competent Authorities agreement at https://www.irs.gov/pub/irs-utl/competent_authority.pdf which in part concerns unit trusts as pension arrangements.


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## BBCWatcher

Iota2014 is on the right track in trying to find an applicable treaty provision (and also one outside the savings clause). GregoryN, the straightforward approach is to ask what treaty provision they're relying on for assertion #2 then go take a look at the provision to see if you agree.


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## GregoryN

I am sure some of the funds are Unit Trusts/Mutual Funds - that was going to be the next question I asked my pension provider, but before I got to that level of detail the above email was sent - it might be something to do with the IRS 8621 being entitled "Return by a Shareholder of a PFIC" and not the owner of products of a PFIC and the instructions stating that to fill the form you must receive distributions from a PFIC, altho' I know very little and other people would disagree.

I am just content that a partner in the UK/US Tax accountants, when pressed, wrote they had submitted thousands of such returns and not one had had issues raised with it.


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## iota2014

GregoryN said:


> I am just content that a partner in the UK/US Tax accountants, when pressed, wrote they had submitted thousands of such returns and not one had had issues raised with it.


That's not an answer I'd be happy with.


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## GregoryN

Ahh, but people differ. If someone has a strong track record in an area I know nothing about I will trust them rather than try to outperform them.


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## iota2014

GregoryN said:


> Ahh, but people differ. If someone has a strong track record in an area I know nothing about I will trust them rather than try to outperform them.


It sounds like they have a strong track record in not reporting income, without being able/willing to explain exactly why that's not risky.

If they know why these pensions don't have to be reported they ought to be able to tell you. There's only a handful of treaty provisions that don't get wiped out by the saving clause - they should at least be able to tell you which one they're relying on. IMO.

(The thing being that it's you that's paying, and it's you that could get walloped if the IRS ask them to explain and they can't give an explanation that's accepted by the IRS.)


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## BBCWatcher

I agree with Iota2014. This is your tax return, your legal liability, not theirs. And a _particularly_ big whallop in this situation (PFICs) if incorrect.

Moreover, even if they're right and the treaty offers relief, you're not required to avail yourself of the treaty. There are certainly circumstances when you should make mark to market elections since they can reduce or eliminate tax. "It depends."


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## GregoryN

iota2014 said:


> It sounds like they have a strong track record in not reporting income, without being able/willing to explain exactly why that's not risky.
> ............
> if the IRS ask them to explain and they can't give an explanation that's accepted by the IRS.)


I think that is quite an unfounded assumption - nobody has been 'unable or unwilling to explain or have 'not reported income' etc etc


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## BBCWatcher

GregoryN, this issue happens to be an easy one. Your tax advisor has made a particular assertion (#2 on your list), and you can ask a simple question: "What specific tax treaty provision are you relying on to support this assertion?" It requires a few words and a few seconds to ask. If the tax advisor is competent it should take them about 60 seconds to answer with a reference to the provision they're relying on (article, paragraph, etc.)

I recall one occasion in the past when a particular tax advisor took a position that seemed "odd" to me. I asked, in so many words, "Where are you getting that?" Long story short, the advisor made a mistake. It can happen. It is possible for good advisors to make mistakes, and then there are bad advisors, too. Unfortunately reliance on the advice of an advisor is not a defense in U.S. tax matters. So you really want to make sure you are comfortable with the advice. It's your tax return, not your advisor's. Asking this simple follow-up question would be a reasonable way to get more comfortable, either way. Right now I would be uncomfortable.


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## iota2014

Sorry if I caused offence - not intended, I assure you.

Might be worth digging out any paperwork you may have received, when you first invested in the pensions, to see if there may be helpful information on, e.g., how the plans are structured? That would be my first step - try to determine which category they fall into, and then find out how the IRS requires that category to be reported, and then look for an advisor who has experience with that particular category.

Good luck. :fingerscrossed:


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## GregoryN

received on 29 October

"The IRS has not adopted an official position and the treaty language is subject to different interpretations following the words used, but not the principles set forth. We have prepared literally thousands of returns and never had one knocked back. Sorry I cannot give you better confirmation than that."


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## BBCWatcher

That response makes me quite uneasy.


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## Bevdeforges

Just my two cents, but if the tax adviser has had no problems so far with that stance, I'd go with it. (Unless we're talking incredibly large sums of money at stake here.)

All tax advisers take their stance based on their reading of the relevant rules and documents. (And frankly, based on their assessment of how likely they are to get away with the position.) There is no single "correct" approach here. You go with what you can justify in your own mind, and what lets you sleep soundly at night.
Cheers,
Bev


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## BBCWatcher

I disagree. A competent tax advisor doesn't wave his/her hands and say things like, "I can't tell you which part of the treaty backs my assertion." This isn't a complex issue or gray area in terms of where relief would be found if it exists. It can only exist in the tax treaty, outside the scope of the savings clause. It shouldn't be like pulling teeth to get a pointer to the article and paragraph in the treaty that the tax advisor is relying on.

I would add that there is probably no way to verify the advisor's claim that he/she has prepared "thousands" of tax returns without problem. If that claim cannot be verified, I would ignore it.


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## GregoryN

*There are smarter people than me, but...*

Well, as I was outvoted by 2 people who have obviously spent a lot of time on this subject (I am sure some people are sick of me) I thought I would attempt to read the treaty again.

And I think I pass, but perhaps because of a fact I did not mention: all my pension contributions were paid by 'my' UK limited company (I was the sole director and employee - working as a contractor) and paid into a personal pension plan.

Article 18 of the treaty seems to describe a fair mutual treatment of pensions.
The Technical Notes to the treaty (page 14) specifically defines a "pension scheme" as defined in turn by the UK's Income and Corporation Taxes Act 1988, where Chapter I of Part XIV describes employer funded pensions and Chapter IV of Part XIV describes PERSONAL PENSIONS.

So, 
1) I must be missing something and 
2) I could not find the "Savings" clause (I even searched for 'sav') 
but even personal pensions seem covered - there may be something else that I missed that introduces the ambiguity that gets people writing, and maybe it is this that allows for differing viewpoints.

And as far as IRS 8621 is concerned, I do not and have never held shares in Aviva or Equitable Life (PFICs), nor have I received distributions from them. I do, however, own some products produced by these companies.

Now, many people with more experience hold differing viewpoints to me, but it certainly appears that even personal pensions are covered by the treaty (what am I missing?) and IRS 8621 introduces the problems but unless you hold shares and receive gain from such PFIC stock this Form is not relevant.


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## BBCWatcher

The savings clause is in Article 1 Paragraph 4 of the U.S.-U.K. tax treaty. It's the "Just kidding!" part of the tax treaty which says, in so many words, that if you're a U.S. person then the entire tax treaty is moot with respect to individual taxation except the specific provisions listed in Paragraph 5.

_Parts of_ Article 18 are listed as exceptions from the savings clause, but you have to read Article 5 carefully to understand which parts.

You've described what the "pension plan" is not. OK, but what is it? Is it an ordinary depository savings account at a bank?


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## iota2014

GregoryN said:


> 2) I could not find the "Savings" clause (I even searched for 'sav')
> but even personal pensions seem covered - there may be something else that I missed that introduces the ambiguity that gets people writing, and maybe it is this that allows for differing viewpoints.


The Saving Clause (Article 1.4) isn't about savings, it's a clause that saves the US from having to do what the rest of the treaty says it will do. It's a US speciality, intended to prevent US citizens abroad from making use of tax treaty provisions to avoid paying US tax on non-US-source income.

Article 1.5 states a few exceptions to the Savings Clause which aren't always easy to interpret. The Technical Explanation offers commentary - I wouldn't go so far as to call it an explanation - on how each article in the treaty is or is not affected by the Saving Clause. In many if not most cases, neither the treaty nor its Technical Explanation will tell you clearly what you actually want to know, which is whether a particular provision can be relied on by a US Person abroad. 

That's the source of the ambiguity.


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## JustLurking

GregoryN said:


> ...I do not and have never held shares in Aviva or Equitable Life ... I do, however, own some products produced by these companies.


And it is precisely _those products_, I'm afraid, that are the PFICs. It's mutual funds and all other unit trusts and so on that are _not_ US-domiciled. Unfortunately this includes practically every sensible and/or default investment you could possibly buy in a UK pension.

From some random international tax consultants:


> In practice, a PFIC is an investment in a foreign (non-US) mutual fund, OEIC, ETF, unit trust or other investment vehicle incorporated as a non-US company (or trust, which the IRS deems to be an investment company). Virtually every foreign mutual fund is a PFIC, and doubtless many US taxpayers living abroad will have invested their assets into mutual funds in the country they are living without any idea of the PFIC rules. Furthermore, even their financial advisers may have invested them into PFICs as they have been historically unaware of the issues regarding investments for their US-linked clients.


GregoryN, so sorry to see you getting embroiled in all of this nonsense.


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