# UK local authority pension living in USA



## Kph100 (Jul 23, 2018)

Hi

So just moved to USA and am in receipt of a UK local government pension that is being paid into UK bank account and being taxed in UK.

How do I claim a tax exemption on the amount of tax to avoid being taxed again on the USA tax return.

Also I understand to be able to claim medicare on retirement have to of worked in USA for ten years is there any way to use the UK NI contributions to make this up if i dont work for a further 10 years ??


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## Moulard (Feb 3, 2017)

If you haven't already you will want to familiarise yourself with the US-UK Tax treaty and totalisation agreements

The text of the treaty..

https://www.gov.uk/government/publications/usa-tax-treaties

The text of the totalisation agreement

https://www.ssa.gov/international/Agreement_Texts/uk.html

A summary of the totalisation agreement

https://www.ssa.gov/pubs/EN-05-10199.pdf

I haven't had time to read in detail, but I its worth noting that per Article 17 of the treaty, your UK pension would be only taxable by the US once you are resident there. I assume that there would be a way to inform HMRC and your pension provider that you are now resident in the US, and that you will pay tax on the income withdrawals in the US per the treaty.

On the medicare side, things aren't so rosy...

Although the totalisation agreement between the US and the UK allows you to count your U.K. credits to help you qualify for U.S. retirement, disability or survivors benefits, the agreement does not cover Medicare benefits. As a result, you get no credit for the UK side in terms of establishing an entitlement to free Medicare hospital insurance in the US.


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## JustLurking (Mar 25, 2015)

Moulard said:


> I haven't had time to read in detail, but I its worth noting that per Article 17 of the treaty, your UK pension would be only taxable by the US once you are resident there.


That's indeed the standard treatment for pensions, but there is a rider for government pensions, Article 19:


> 2. Notwithstanding the provisions of paragraphs 1 and 2 of Article 17 (Pensions, Social Security, Annuities, Alimony, and Child Support) of this Convention:
> (a) any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall, subject to the provisions of sub-paragraph b) of this paragraph, be taxable only in that State;
> (b) such pension, however, shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.


This seems to suggest that if the OP is not a US citizen, a UK local authority pension is taxable only to the UK, and if they are a US citizen, it is taxable only to the US. Article 19 is one of the few exceptions to the US's spiteful 'saving clause'.

Murky.


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## Bevdeforges (Nov 16, 2007)

In any event, if the pension is being taxed in the UK, then when you file a US tax return (calendar year - due in April of the year following) you need to file in addition to whatever forms you would normally need, a form 1116 for the Foreign Tax Credit.

Basically, you need to declare the UK pension along with whatever other income you have ("worldwide income"), calculate the US tax on that, and then using the form 1116 you get to take a credit for the taxes paid in the UK on your pension.


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## Moulard (Feb 3, 2017)

JustLurking said:


> That's indeed the standard treatment for pensions, but there is a rider for government pensions, Article 19:
> 
> This seems to suggest that if the OP is not a US citizen, a UK local authority pension is taxable only to the UK, and if they are a US citizen, it is taxable only to the US. Article 19 is one of the few exceptions to the US's spiteful 'saving clause'.
> 
> Murky.


As I said, I didn't have time to read the treaty in detail and the non social security government pensions clause in the UK treaty isn't part of the OECD model. Good on the UK for going into bat in a way that very few other countries do. 

I'll add in the technical memorandum to the list of required reading. You need to read Article 17, 18 and 19 to get the full treatment of pensions.

https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf

The memorandum forms part of the treaty document but doesn't have to avoid the diplomatic niceties of treaty language itself.


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