# Tax free pension lump sum and when to become USA resident



## Kph100 (Jul 23, 2018)

Currently going through USA IR1 visa route.
I will be taking my pension upon leaving UK job and moving to USA with intention then to get job in USA.

My work pension is a defined benefits scheme with option to take tax free lump sum upon retirement and reduced annual pension.

I was going to wait for Visa agreement, enter US to activate visa and then return to UK for few months to give notice and retire and arrange pension payment etc.
However now thinking that may affect tax free lump sum payment as I assume i am US tax payer from the date Visa activated and guess have to pay tax on the lump sum that will be paid on retirement in UK ??

Is this correct, I really dont want to give in my notice until I am assured I have visa stamped and therefore greencard on border entry in USA, but also dont really want to be taxed in USA on the lump sum when I can get it tax free if in UK.
What date do you become USA tax resident ? I assume once the Visa activated on entry first time.

peoples views please.


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## JustLurking (Mar 25, 2015)

Kph100 said:


> However now thinking that may affect tax free lump sum payment as I assume i am US tax payer from the date Visa activated and guess have to pay tax on the lump sum that will be paid on retirement in UK ??


Opinions vary on whether or not a US person faces US tax on the 'tax-free lump sum' from a UK pension. Check out Article 17 paragraph 1(b) of the US/UK tax treaty. It is an exception to the 'saving clause' in Article 1 paragraph 4, whereas Article 17 paragraph 1(a) is not. See if you can tell which applies, if any. Nobody really seems to know for sure.



Kph100 said:


> What date do you become USA tax resident ? I assume once the Visa activated on entry first time.


Potentially. Details here: https://www.irs.gov/individuals/international-taxpayers/residency-starting-and-ending-dates

There are several things to watch out for with residency start dates, though. For example, if you visit the US for a holiday, return to the UK, get your green card and then actually move to the US, your tax residency start date may be the date of your first holiday visit. Entirely counter-intuitive, of course. Not to mention murky and full of potentially expensive and painful gotchas. Once you have moved to the US you will become completely used to nonsense like this.

Finally, do your own research here. This is a minefield, and I may well have missed a detail or two, or just plain got something wrong above. Tread _extremely_ carefully.


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## SoCal85 (Jan 14, 2019)

As mentioned, you can potentially try to use the US/UK treaty to exempt the income after you become a US person. If you do, a Form 8833 needs to be attached to your US tax return in the year you are claiming the treaty exemption. General rule is as a non-US person you are subject to tax only on US sourced income. Once you become a US person (either through substantial presence, greencard) you are subject to tax on worldwide income and reporting. 

Easiest obviously is to take the lump sum distribution before you become a US person. Your US residency starts on the first day you are physically present in the United States for any reason in the calendar year. You can possibly exclude up to 10 days under another rule, but you will need to meet the requirements and also include a statement with your initial tax filings. So if you must be in the US for any reason before actually moving here, make sure this does not exceed 10 days. If you have significant assets I would suggest doing some pre-immigration tax planning so you are aware of all of the tax issues relating to your move. It would be difficult to fix after the fact.


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