My client is a UK national resident in USA. He is in receipt of a UK private pension and the UK state pension.
My understanding is that he is not entitled to the UK personal allowance, but that the state pension is disregarded in any event and he ends up just getting taxed on the private pension. Is this correct?
In respect of his US tax affairs I assume that he will also have included his pension income on his US tax returns and suffered tax. So does he get credit for the US tax paid on his UK tax return?
Thanks in advance for any help.
Replies (7)
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FTCR on a UK source? Are you sure?
Presumably he claims credit in the US for the UK tax, just leave it at that.
Under the US/UK tax treaty, the United States has sole taxing rights to charge tax on most pensions. The United States will not therefore give credit for current foreign (UK) tax as none is due under the treaty. If UK tax has been withheld in error, your client will want to reclaim this from HMRC through his self-assessment return. You will want to review the US return to ensure that your client is not claiming foreign tax credit in the United States to which he has no entitlement.
Assuming you determine that the treaty applies, the client will complete “Form US-Individual 2002” (https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...) to request an “NT” code.
The client will also complete Form 8802 http://www.irs.gov/pub/irs-pdf/f8802.pdf, pay the user fee and send it to the IRS in Philadelphia. This Form requests that the IRS prepares Form 6166, which is the Certificate of US Residency that the IRS will prepare sends internally to HMRC to verify that the client is a US resident.
When the IRS receive the Form 8802 they will send it to HMRC, together with the Form 6166 confirmation of the client’s US residency (this is discussed here: http://www.irs.gov/Individuals/International-Taxpayers/Form-6166---Certi....)
The client will naturally need to continue to file decent quantities of paperwork each year such as Forms 1116, Schedule B, 8938, FinCEN 114, 8833 and potentially 3520-A and 3520 and 8621 as a part of any annual filing obligations in the United States.
That's a much more thoughtful - and correct - response than was mine earlier. I agree with all of it except:
That's not your job.You will want to review the US return..."