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NT tax code for UK pension payments in US

I want to know how to apply for a NT tax code, for income payments on UK private pensions

I was hoping someone in this community may have already applied for a NT code from the HMRC, as a non-UK resident, receiving a pension income paid from a UK pension.

I am a British National living and working as a financial advisor in New York, and a common area for me in our practice due to my expertise in UK pensions, is transfering existing/frozen/matured UK pensions into international versions of UK SIPPs for the tax benefits and flexibility for my clients throughout the US.  Whilst this is all very straight forward, one area I cannot seem to get a clear understanding on, is how to ensure my clients can avoid emergency tax deductions/tax rebate or credit issues when receiving an income in retirement as a US resident, from the UK pension.  I'm not a tax expert, but it is helpful if I can pre-empt likely tax issues by giving a step-by-step guide on what to do and when in such matters.  I have such a format for checking NI contributions and topping up missed years which is useful to my clients, so avoiding any unnecessary tax deductions would also be a good thing for me to share.

I have heard applying for a NT code (effectively zero rate tax band) will ensure that the trustees of the pension can pay the underlying client gross, and thus avoid any HMRC tax claims, and pay the due tax in the normal way as a US resident.  Does anyone have any experience of this, or know how a person can apply and register as 'NT' with the HMRC prior to receiving any income?  Any information kindly shared, would be greatly appreciated.  Thank-you.

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09th Nov 2017 11:41

Your clients need to make a claim under the US-UK double tax treaty, Article 17. You submit form 'US-Individual 2002', as explained at https://www.gov.uk/government/publications/double-taxation-united-kingdo.... It's all explained in the notes to the form. It also doubles as a refund claim for UK tax already suffered that would not have been deducted if the NT had been requested at the outset.

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09th Nov 2017 12:16

Thank You, David. I will study those links. Very much appreciated. Dean.

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10th Nov 2017 18:38

I am not clear why it would be suitable for a US resident to transfer assets from a UK registered pension plan into a vehicle that from a US perspective would be treated as a foreign grantor trust; especially given the current UK QROPs legislation.

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to David Treitel
10th Nov 2017 23:13

Hello David. Thanks for your comment. My response may be more useful to yourself and others in a 'pension transfer' themed thread, but happy to give a quick summary here:

There are many reasons why a US resident would move or consolidate UK pensions into a single pension, and these can be summarized as: Full ownership of the capital; The ability to transfer that ownership in full, with no US taxes or UK taxes; A tax free lump sum and/or drawdown benefits from age 55; Flexibility on benefit payments; Flexibility of lifetime income payments, or a full (albeit taxable) withdrawal; and investment options.

You mentioned QROPS (qualified recognized overseas pension schemes) - These are best not used as non-EU residents incur a 25% overseas transfer charge. We do not use them for that very reason.

The mechanism for moving a UK pension, or consolidating a number of UK pensions into one single US-compliant private pension is not a taxable event, nor is it treated as a foreign grantor trust. The pension also remains in the UK, obviously, as my original question was about UK tax codes for US residents drawing income in retirement.

I hope that summary is useful.

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to delliott01
10th Nov 2017 23:20

To add to one sentence above: "The ability to transfer that ownership in full, with no US taxes or UK taxes"

Insert: Transfer upon death only . It cannot be passed on in any way during the owners lifetime.

Furthermore, if the owner dies before age 75, the beneficiary does not have to pay income tax either. From age 75 and over, the beneficiary pays tax at their nominal rate.

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