Taking UK company pension in the USA.

[Exflyboy]

Under the US-UK double taxation treaty you (as a UK citizen) are entitled to receive all your UK pension funds free of UK tax, which then get taxed in the US as part of your regular income.

So far so good.

So how does one do this. Well you fill out form US-Individual 2002 (a UK form) which you then send to the IRS.

With your form you send IRS form 8802 along with a fee of $85.

The IRS will apparently (according to them)  return a form 6166 to you dear US tax payer, which is a certificate of tax residency basically.

The potential problem is that the UK form requires the IRS stamp the UK form, certify and sign it and then send the form back to the UK together with form 6166.

Now if anyone gets that feeling "then a miracle happens" then you and I are in the same boat. Somehow I just don't see the IRS completing a UK from and then sending it directly to somehwere different than listed on the application for (8802)

Has anyone had actual experience of this process?

[xsgary]

Did you find a solution as I am having similar issues, a friend has advised me to use a company called Atlantica Wealth who are based in New York, but I would rather see if I can sort it our myself?

[reeshau]

Ireland has a similar arrangement, but the Irish Revenue office explicitly states (when you dig deep enough) that they accept the IRS form 6166 in lieu of their form.  Have you asked explicitly if the UK would accept this?

[Exflyboy]

I realised I didn't answer the above question.

When I looked at the UK forms I remember reading something that the UK would accept some other kind of document. This was a while back now but I was satisfied the UK would accept the US stamped certificate.

Here is the UK form you need to fill out. There is a reference to the "Notes".. The notes are not attached to this form but I have seen them somewhere and that is where they tell you they will accept the IRS tax residency certificate.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/850465/Form_US-individual_2002.pdf

Hope this helps but I think I decided it was not a big deal after I looked through it.

Here is how you get the required certificate.

https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency

[AdrianC]

Exflyboy, thanks for posting this. I just did a search for "UK Pensions" and found it.

I'm coming up on being able to take a small pension I had in the UK. This is where my research has gotten me so far:

- Can begin to withdraw money from pension ‘pot’ at age 55.
- Can take a 25% lump-sum free of UK tax.*
- The rest of it will be subject to UK tax withholding at 20%. I can get around this using IRS Form 6166 'Certification of U.S. Tax Residency' and 'Application for Relief at Source' with HMRC.
- I will have to pay tax on it in the USA.**
- Money will pass through a UK bank account so I will have to file an FBAR form if amount greater than $10k.
- The pension value is less than $100k so I do NOT have to file IRS form 8938 'Statement of Specified Foreign Financial Assets'.

Questions to be resolved:
*Will this 25% lump sum also be tax-free in the USA? Seen conflicting ideas on this.
** 1040 Line 5 “Pensions and annuities”?

[Exflyboy]

I can't see how the 25% lump sum could be tax free in the US.. now if you paid into the scheme with your own money then part of it would be because the capital gain would be what you sold the asset for minus what you paid.. That part would be tax free.

If you didn't pay into it (like I didn't) I think its all taxable.  I agree the answer looks complex so I decided to "not go there" and just take my monthly payment to keep it simple.

I also discovered my pension plan will pay directly into my US bank account in US dollars.. This seems quite miraculous so I'm wondering what the catch is?

I did read the forms again last night and it specifically says to fill out the tax UK relief form and send it directly to the IRS. Reading the US forms it appears they they have a special arrangement with the UK. I.e they both refer to each others forms on their instructions so it seems like this is a process both the IRS and Inland Revenue are familiar with.

 The UK form "individual 2002" refers to the US certificate 6166 specifically.

it looks like this should actually work... For $85 I certainly hope so.

I think I will have to go thru the same process again when I claim my UK State pension.

If you get a private pension this will also kick off the Windfall elimination provision (WEP). In my case they will reduce my Social Security payment by $480/month.. File that under "creative taxation or foreigners).

[AdrianC]

I can't see how the 25% lump sum could be tax free in the US.. now if you paid into the scheme with your own money then part of it would be because the capital gain would be what you sold the asset for minus what you paid.. That part would be tax free.

https://www.myexpatsipp.com/mesinsights/usa-residents-with-a-uk-pension-the-3-most-common-questions#:~:text=The%20double%20taxation%20treaty%20signed,normal%20retirement%20date%20of%2065.

"The double taxation treaty signed between the UK and the US allows for the 25% pension lump sum to remain tax free in the US and in the UK."

I've seen other "advisors" claiming it's not tax free, or it is, but only if I use their valuable services. My tax rate is so low right now I might not bother trying to push it.

I did pay in with my own money, way back when. Mine is a personal pension scheme - they were popular back in the late 80's/early 90's. I didn't pay a lot in 'cos I got the gig in the states soon after and never really went back. I'll try to find out my "cost basis", if that's even possible.

I also discovered my pension plan will pay directly into my US bank account in US dollars.. This seems quite miraculous so I'm wondering what the catch is?

That's is surprising. I'll ask mine, but I doubt they will. The pension got sold off to an outfit called "ReAssure". I'm not expecting much customer service.

it looks like this should actually work... For $85 I certainly hope so.

I'll try it.

[AdrianC]

An update: so I saw that the fund choices for my UK pension weren't good, but they weren't horrible, and I don't need the money so I thought I'd switch to an equity fund and let it ride for a couple of decades. Currently it's in a "With-Profits" fund, which means there's no telling what it's in, what bonus they might give or take away, or what it's costing me.

Later I realized that on top of the already exorbitant 0.51% expanse ratio, the equity fund had a 5.25% bid/offer spread. Luckily the fund switch request didn't go through.

I'm back to wanting my money out of there ASAP. I'd rather pay the tax now than pay those blood-suckers now, and pay tax later anyway.

[Exflyboy]

Yes in your position I'd be thinking the same.

My pension is a little different as it was a proper defined benefits, non-contributory pension. Its funny at the time I remember shrugging my shoulders as that was "normal". Today I recognise what a gold mine it is.

I only worked for this company (actually it was the UK division of a US fortune 500 company) for 11 years.. then I moved to the "Mother ship", i.e the US branch of the same company.

Today that pension is worth about $520k and pays roughly $21k/year if I take it this year, or $27k if I wait 5 years.

Thats only around a 4% payout but considering I paid nothing for it I really can't complain.