Taxation of US pension lump sum
Posted: Sun Dec 02, 2018 12:56 pm
I am a UK citizen and a US long term permanent resident. I've spent my working life in the US, or on overseas assignments as a US expatriate. I am planning to return to the UK for good soon and am starting to think through the ramifications of that. I intend simplifying my life by relinquishing my Green Card as soon as possible after returning to the UK, as long as the timing makes tax sense. I will be a covered expatriate for sure.
Although I understand that my US company pension would be treated as deferred compensation and so not exposed to mark-to-market "exit" tax, I would actually prefer to release the approx. $500k in this fund ASAP, by taking a 100% lump sum distribution. Clearly that would come with a big tax one-off bill, but I understand the tax treaty position is that this would be payable only in the US? Moreover, assuming that really is the case, can I also use a backlog of foreign (UK) tax credits that I accumulated during a recent 4 year job posting to the UK to offset some of that US tax (the foreign tax credits "general income" pot being for UK income tax that was paid on my salary and pension contributions during the time in the UK)? Obviously that would have to be done while I was still a US resident, so it's fundamental to my decision about when to give up the Green Card.
Although I understand that my US company pension would be treated as deferred compensation and so not exposed to mark-to-market "exit" tax, I would actually prefer to release the approx. $500k in this fund ASAP, by taking a 100% lump sum distribution. Clearly that would come with a big tax one-off bill, but I understand the tax treaty position is that this would be payable only in the US? Moreover, assuming that really is the case, can I also use a backlog of foreign (UK) tax credits that I accumulated during a recent 4 year job posting to the UK to offset some of that US tax (the foreign tax credits "general income" pot being for UK income tax that was paid on my salary and pension contributions during the time in the UK)? Obviously that would have to be done while I was still a US resident, so it's fundamental to my decision about when to give up the Green Card.