Taxation of UK Pensions for US resient individual

My client is a UK national resident in USA.......

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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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By Tim Vane
23rd Aug 2017 11:49

If he is a British Citizen then he gets a PA. He can also claim FTCR.

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Replying to Tim Vane:
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By Tax Dragon
23rd Aug 2017 12:05

FTCR on a UK source? Are you sure?

Presumably he claims credit in the US for the UK tax, just leave it at that.

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Replying to Tim Vane:
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By sooty66
23rd Aug 2017 12:19

Ok thanks. I assume that he will remain a British Citizen unless he's renounced his citizenship, irrespective of how long he's lived in the US?

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By sooty66
23rd Aug 2017 14:44

Having looked into this further can I just file a "Form US-Individual 2002" to reclaim the Uk tax paid and ensure tax no UK tax is deducted at source in the future?

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By David Treitel
23rd Aug 2017 15:53

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.

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Replying to David Treitel:
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By Tax Dragon
23rd Aug 2017 16:27

That's a much more thoughtful - and correct - response than was mine earlier. I agree with all of it except:

David Treitel wrote:

You will want to review the US return..."

That's not your job.
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By sooty66
24th Aug 2017 16:07

Thank you everyone for your very helpful responses!

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