IRS Treatment of a UK Pension Lump Sum

[JanetKF]

Hello,

I am a UK citizen domiciled in the US and also a naturalized US citizen. I would like to access a pension from a UK job I held in the 1980s/90s, including a lump sum. I understand that the lump sum should be exempt from US tax under Article 17, Paragraph 1(b) of the US-UK income tax treaty. but I know this has to be done in the right way on the correct forms with the correct wording to avoid expensive consequences.

The advice on the IRS website is as follows: "If you live in the United States and receive a pension/annuity paid by a foreign payor, you must claim the appropriate treaty withholding exemption on the form, and in the manner specified by the foreign government." It is not clear what "the form" is, or what is "the manner specified by the foreign [UK] government."

Because I am a dual citizen, I am not sure whether the form in question would be Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting. The IRS instructions to W-8 BEN state not to use the form if "You are a U.S. citizen (even if you reside outside the United States) or other U.S. person (including a resident alien individual). Instead, use Form W-9 to document your status as a U.S. person."

Any advice would be appreciated. I have not been able to find any local accountant or pensions advisor who has any knowledge of this issue. Thank you -- Janet

[DavidTreitel]

Janet - if I understand the question correctly, you are a resident of the United States. If the filing thresholds are met, you will already be reporting the UK pension plan annually to the IRS on Form 8938 and may also be reporting the plan to FinCEN annually on an an FBAR.

The question references Form W-9, which relates to withholding. Withholding is not a final tax, nor would Form W-9 be of use to a US pension trustee. If you wish the treaty to be applied, you will complete Form “DT US Individual” (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/373937/us_individual_2002.pdf) to request an “NT” code.
You will also complete Form 8802 http://www.irs.gov/pub/irs-pdf/f8802.pdf, pay the user fee and send it to the IRS. When the IRS receive the Form 8802 they will send it to HMRC, together with the Form 6166 confirmation of your US residency (this is discussed here: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency.)

Irrespective as to whether UK tax is withheld, as a US citizen, a US income tax return worldwide income and gains.

This reply does not comment on any interpretation of the words "lump-sum" or whether or not any payment may be taxable by the United States. It would be prudent to take qualified professional advice on these questions.

[JanetKF]

Thank you for your reply. My follow-up question is if you can suggest how I could locate a suitably qualified tax/pensions professional in in the United States to help guide me through this process - I am utterly confused.