# US/UK taxing of pensions



## salix

I'm a long way off from this being of concern, since I won't be moving to the UK until 2015 but I like to plan ahead and have my ducks in a row, so to speak.

I don't plan to work in the UK, but I will be collecting a US based employment pension (I'm making the move late in life). Since I will be collecting money, probably around £50-60,000, will this be taxable to me in the UK? I will still be paying US taxes on the income, it's withheld when it's paid. Most of it is from a government pension, the rest will be withdrawn monthly from my 457 plan account.

I will be married to a UK citizen and he is employed. I plan to file my US taxes as "married filing separately".

Thanks for any insight.


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## Bevdeforges

Once you're resident in the UK, you're subject to their tax laws. However, make sure to take a look at the US-UK tax treaty. Normally there is a section (usually somewhere around paragraph 18 or so) dealing with pensions - certainly with government pensions (i.e. US social security). http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z

The tax treaties generally define where most pensions are taxed - for government pensions, it's usually the country of origin, however, I think the UK has a special arrangement for taxation of US Social Security. (Check the IRS publication on Social Security benefits if you can't tell from the tax treaty.)
Cheers,
Bev


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## salix

Bev,

Thanks for the reply, but I won't be receiving any Social Security (Windfall Provision), my pension is from CalPERS as I was a local government employee for 31 years. Currently I've been retired for 3.5 years. I've also discovered they cannot pay my entire monthly amount to an overseas account. It must be at least partially deposited to a US bank. I'm not sure how much can be sent internationally, I need to go in and speak with them.

Does this make a difference?

The annual pension will amount to around £50,000, the balance is from my Section 457 account.

Thanks for your help.


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## BBCWatcher

_Zero_ Social Security? Not following. The Windfall Elimination Provision has a maximum reduction of 50%, doesn't it?

Or are you saying you don't qualify for U.S. Social Security because you didn't contribute enough over 10 calendar years to qualify, because you were Social Security exempt for most/all of your career?


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## salix

No, I have my 40 quarters from early in my working career, but I will get little or no social security. The last I checked I figured if I received enough for lunch, anything extra would be a bonus. 

The last 26 years of my working career were in a social security exempt position. My employer dropped out of SS in 1981. As of 1986 of course everyone had to pay into Medicare. I went to work for them in 1988. I was the payroll manager, so I monitored tax implications pretty closely.

I will of course qualify for Medicare and figured at 62 I would go in to talk to them about if I would receive anything from SS. If your pension is high enough, you end up with nothing. That's true for teachers as well through CalSTRS. It's also true that your spouse will not qualify to collect based on your quarters if your stipend is all offset. It does bother me that I paid into the system and will get nothing in return, but it's hard to complain too much about getting nothing because I make too high of a pension (not that I didn't work many long years to earn it).


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## Bevdeforges

You can check your Social security record on the SS website my Social Security ? Sign In Or Create an Account Finding out how much you're entitled to net of the WEP is a royal pain the butt (you have to re-enter all your contributions by year) but as mentioned, the maximum WEP reduction is something like 50%.

You can at least check what your non-reduced SS benefit would be and go from there. I know I was pleasantly surprised to find that even after 20 years outside the system my original contributions add up to a reasonable monthly check at age 66 or so. (Over here you wind up pulling together multiple pension payments to hopefully wind up with enough to live on.)
Cheers,
Bev


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## BBCWatcher

Have you tried using the WEP Calculator on the Social Security Administration's Web site? I just did using a rough approximation of what I think your situation is. I got a nonzero monthly benefit result that's quite a bit better than lunch money. Plus there will be a spousal benefit when she's ready to collect if you qualify.

Obviously you'll have far better numbers than I will, but you may be pleasantly surprised. Note that I boosted your California state pension to the moon as a simulation and the benefit amount didn't budge from where I started. I think your understanding of how this calculation works may be mistaken.

By the way, the general rule is that _if you are comparatively healthy_ and _if you don't need the money right away_ then wait as long as you can to collect your Social Security retirement benefit but no later than age 70. It's profitable to do so. That general rule could be influenced a bit depending on the U.K. tax treatment of your U.S. Social Security benefit.

Also by the way, you can't be the first individual with a California state pension to retire in the U.K. To ask a slightly naive question, have you checked with the state pension system to ask if they know how the U.S.-U.K. tax treaty applies to your state pension benefits?


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## salix

Thanks to you both, I will go and check the WEP calculator. My SS earnings aren't terribly high, as my quarters were all earned when I was young and wages were low, but they did meet the minimum threshold.

I'll have to pull my last annual SS statement and get my actual figures.

I did plan to wait until at least 67 before I started to draw any benefit (other than signing up for Medicare).

I haven't checked with PERS on taxes when living overseas. The only thing I looked into on their website was direct deposit. I've been trying to find the easiest way to have access to my funds while in the UK. As long as they can transfer part of my pension payment I should be okay. I will need to have funding here as I will still be making some automatic payments here (mortgage, insurance, property taxes, health insurance).

I'll report back, someone else may have my situation. Thanks again.


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## BBCWatcher

There are very low cost money transfer specialists that can help you move funds between your U.S. and U.K. bank accounts, and of course there are excellent, low cost U.S. ATM/debit and credit cards.

Examples of the former (and with no endorsements implied) are Xoom, XE Trade, CurrencyFair, and Venstar. These companies can pull the funds from a U.S. bank account via ACH (as a U.S. domestic funds transfer, in other words), convert the funds into pounds, then deposit them in the U.K. as another domestic funds transfer there. So generally you don't pay bank charges on either end, and you only pay the fees and exchange rate spread that the money transfer specialist firm charges.

If CalPERS supports direct deposit into the U.K. you can take a look at their rates and fees (plus your bank's) to see if they're competitive. Same with U.S. Social Security, and I know they support direct deposit into a U.K. bank account.


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## salix

Thanks, I had already heard of Xoom and looked briefly at their website, so I have some understanding of how their system works. I'll check the others.

Since you appear to be knowledgeable on the subject of banking as well, do you know of a bank in the US that will allow me the opportunity to fairly easily open a UK account when I move there? To state it more clearly, a bank that operates in both countries. I have looked at a couple such as Lloyds and HSBC, neither of which have anything local to me. Also I don't want a requirement to hold a large sum of money to qualify for an international account. The majority of my savings are tied up into mutual funds.

I just want a bank that won't make me jump through too many hoops once I'm in England and need an account there. Any suggestions?


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## BBCWatcher

I haven't heard that it's particularly difficult to open a basic bank account (sans overdrafts) in the U.K. after you move there and have valid ID and proof of address. Tesco and the Post Office (to pick a couple examples) are getting into the bank account business, so pretty soon you'll get a free bank account when you buy a sandwich at this rate. 

One Web site I saw recommended the Barclays Cash Card account and the Co-op Cashminder account as examples of no frills, low cost (free really), basic bank accounts that don't require U.K. credit histories.


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## salix

Thanks so much, I'll worry about banking when I get there and plan to live by the ATM/internet bill pay until that time.

Tesco and I are old friends..............on my last three month visit I became an online shopper (no car at my disposal!)


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## theOAP

salix said:


> I'm a long way off from this being of concern, since I won't be moving to the UK until 2015 but I like to plan ahead and have my ducks in a row, so to speak.


It's never too early to start. In your case, an understanding of how the UK tax works will give you time to decide how/where you want your funds dispersed once you move to the UK. It also gives you time to set up both a UK and US bank account, depending on where your funds are needed. 



salix said:


> I don't plan to work in the UK, but I will be collecting a US based employment pension (I'm making the move late in life). Since I will be collecting money, probably around £50-60,000, will this be taxable to me in the UK? I will still be paying US taxes on the income, it's withheld when it's paid.


Yes, and yes, again depending on where your funds are located.

WEP on your US Social Security can be from 0% to 50% (as has been explained above). In your case, due to the size of your CalPERS pension, a 50% reduction would seem a safe bet even with 10 years of SS contributions. Be aware that the 50% has a cap. For this year, the max amount is around $800+. Therefore, therefore, the max reduction (50%) to your SS will be around $400+/month. If your total SS benefit is below the roughly $800/month figure, then the amount of reduction will be 50% of that figure.

The SS payment may be small, but it does buy 1 or 2 very nice country pub lunches each month, so it is worth it.

There are some questions you need to assess, and the answers will have an impact on your tax situation once you are in the UK. I take it, you are not presently a UK Citizen.

How long do you intend to stay in the UK? Is it more than 7 years? (I know,...situations can change, but if you had your way, how long would it be?)

I don't doubt your word, but make absolutely sure CalPERS can not send the entire pension to the UK. Perhaps check with someone in authority.

Where do you want your funds? Do you want all in the UK, or do you want only part of the pension sent to the UK?

Your situation does not have any complicated sources of income, but the amount of your pension (£50,000 to £60,000) will require some thought.

Be aware of the two filing methods in the UK: the 'arising basis' and the 'remittance basis'. A brief comment on the two:

When on the remittance basis, only the funds brought into the UK are taxed by the UK (at 100%). That sounds good, but there are some downsides. I believe you will lose your personal allowance (currently £10,000/year) and also the tax free benefit on capital gains. After 7 years, you will have to pay a non-dom tax of £50,000/year if you wish to remain on the remittance basis.

When on the arising basis, your entire worldwide income is taxed. In your case, there is a benefit in that foreign pensions (US) are only taxed on 90% of the pension. You are also entitled to all UK tax benefits (such as personal allowance, etc.).

Again, due to the size of your CalPERS pension and whether you want all the pension benefits sent to the UK, the 40% tax bracket may well come into play. The UK does allow a tax credit for taxes levied by the US, but that can become challenging (not difficult or impossible, but challenging).

So, a lot to consider before you make the move. I don't usually recommend contacting a tax advisor unless it's prudent to do so. In your case, much depends on your appetite for working all this out. It's not impossible, but it will take some thought and planning.

Some info:
Meaning of 'residence' and how it affects your tax
HM Revenue & Customs: Meaning of 'residence' and how it affects your tax

Meaning of 'domicile' and how it affects your tax
HM Revenue & Customs: Meaning of 'domicile' and how it affects your tax

_EDIT: I'll add this:
Paying tax on the remittance basis - an introduction
http://www.hmrc.gov.uk/international/remittance.htm_


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## salix

Thanks so much for all the further information.

It sounds as though my situation is going to be more complex than I thought. I am a US citizen and my intent is to say at least six years in the UK. I want to attain ILR and my fiancé is still working (he is a couple of years younger than I am and doesn't have the same level of pension available to him).

Ultimately, we may decide to retire in the US (I am paying mortgages on two homes here), although being able to travel freely between the two countries would be optimal. We both have very small families in our respective countries, he with elderly parents to consider.


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## Bevdeforges

I wouldn't get too worried about the hassles of opening a regular bank account in the UK. The banking situation there is very similar to how things work in the US. The main "annoyance" is the "Know Your Customer" regulations - which are, again, very similar to what you have in the US. You basically have to show up in person to open an account, and they will ask you for various bits of i.d., but past that, it's not a major inconvenience (or not any moreso than it would be to open a new bank account after a move in the States). 
Cheers,
Bev


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## salix

Thanks.


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## fletchh

You will need to open an account in England, and you may be able to do it on line. I live in Barbados, and I am a retired US federal worker. I opened an account years ago in Barbados, and I deposit USD cheques to fund my Barbados account. It takes about a month and a half to clear the cheque, as the US is very interested about where their USDs are going. Once you have an account established, if you don't want to wait for the money to clear via cheques, you can use the various sites mentioned above.


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