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Where Taxpayers and Advisers Meet

US Citizen Retiring in England

guya
Posts: 67
Joined: Tue Nov 11, 2008 10:44 pm

Re: US Citizen Retiring in England

Postby guya » Fri Jan 01, 2010 11:01 pm

I agree that the question was clear and that Michael is correct here.

The saving clause in the treaty is over-ridden for both US Social Security and Government Pensions so there is indeed only US tax on these - not UK - even if remitted to the UK. You would file Form 8833 with the US return and make a treaty claim on the Residence pages of each UK return. {NB It is known as the "Saving Clause" because it saves the rights of the United States, it is never called a Savings clause.}

There are downsides such as that you might still face UK tax on foreign currency gains on US dollars each time you receive or spend foreign currency such as US$. Equally, outside of pensions you might have other investments which are unsuitable from a UK perspective such as US mutual funds.

This is a complex situation from a tax perspective so does warrant professional advice from a dual US/UK qualified adviser.

ukblairs
Posts: 5
Joined: Fri Dec 18, 2009 5:44 pm

Re: US Citizen Retiring in England

Postby ukblairs » Sat Jan 02, 2010 12:05 am

So, if I understand everything correctly:

As per Article 19 para 2, my Air Force pension and my City of Manchester NH, USA pension are taxable in the US but not in the UK.

As per Article 17 para 3, my US Social Security benefits, when I decide to collect them, will be taxed by the UK but not the US.

I assume that my US VA disability benefits, which are paid by the US Govenment and are tax exempt, will remain tax exempt.

I do have a US IRA mutual fund but at the moment the dividends and capital gains are automatically reinvested and I am not taking any disbursements from the fund. I assume there is no tax until I start taking disbursements and when I do there will be a UK tax.

I don't understand what mean about "you might still face UK tax on foreign currency gains on US dollars each time you receive or spend foreign currency such as US$"

You are right about needing "professional advice from a dual US/UK qualified adviser."

Thanks,
John

guya
Posts: 67
Joined: Tue Nov 11, 2008 10:44 pm

Re: US Citizen Retiring in England

Postby guya » Sat Jan 02, 2010 12:19 am

OK so far... but I see no reason why the UK would not tax the disability pay ... foreign currency (eg American dollars) is a chargeable asset for UK capital gains tax purposes where is why disposal of dollars could cause a UK capital gains tax charge with horrendous maths to actually prepare a UK return.

The IRS answer will depend on whether you elect the remittance basis on a UK return and - if not - if you elect into the UK/US treaty on a UK return.

guya
Posts: 67
Joined: Tue Nov 11, 2008 10:44 pm

Re: US Citizen Retiring in England

Postby guya » Sat Jan 02, 2010 12:20 am

The IRS answer will depend on whether you elect the remittance basis on a UK return and - if not - if you elect into the UK/US treaty on a UK return.
This should have read:
The IRA answer will depend on whether you elect the remittance basis on a UK return and - if not - if you elect into the UK/US treaty on a UK return.

maths
Posts: 7580
Joined: Wed Aug 06, 2008 3:25 pm

Re: US Citizen Retiring in England

Postby maths » Sat Jan 02, 2010 12:44 am

Saw "Manchester" and overlooked "NH".

maths
Posts: 7580
Joined: Wed Aug 06, 2008 3:25 pm

Re: US Citizen Retiring in England

Postby maths » Sat Jan 02, 2010 12:49 am

Guya wrote:
The saving clause in the treaty is over-ridden for both US Social Security and Government Pensions so there is indeed only US tax on these - not UK - even if remitted to the UK.
This not the view of either myself or I believe Michael.

Michael I. Atlas, CA
Posts: 192
Joined: Wed Aug 06, 2008 3:37 pm
Location: Toronto
Contact:

Re: US Citizen Retiring in England

Postby Michael I. Atlas, CA » Sat Jan 02, 2010 1:23 am

I believe that we had concluded that the savings clause was only overridden for the US Social Security, since that is the subject of 17(3) which is covered by the exceptions in 1(5). The end result would be that would not be subject to US tax.

As far as the two government pensions are concerned, they can be taxed by the US, but, as per Article 19, cannot be taxed by UK.
Michael I. Atlas, CA,CPA,TEP
Practice Restricted To Tax
Toronto, Canada
http://www.TaxCA.com

maths
Posts: 7580
Joined: Wed Aug 06, 2008 3:25 pm

Re: US Citizen Retiring in England

Postby maths » Sat Jan 02, 2010 2:38 pm

I agree.

Re the comment by guya on foreign currency issues the position is that foreign currency (eg $) constitutes a chargebale asset for UK CGT purposes and the normal rule that debts are exempt from CGT is inapplicable to foreign currency bank accounts.

However, in principle a UK CGT problem only arises where there has been a depreciation in the value of sterling against the $ between the time of the deposit into the account and the time of any withdrawal; in which case a sterling gain will arise. In the alternative a sterling loss arises.

To the extent that you draw down your pension etc and remit immediately to the UK (ie you do not deposit such monies in USA $ bank accounts for any length of time) the UK CGT issue does not arise.

ukblairs
Posts: 5
Joined: Fri Dec 18, 2009 5:44 pm

Re: US Citizen Retiring in England

Postby ukblairs » Sat Jan 02, 2010 4:06 pm

Thanks for the explanation of the CGT on currency transactions. I don't think this will be a problem. My Air Force pension is direct deposited into a Lloyds TSB ofshore £ Sterling account which I use for my living expenses in England. My City pension is direct deposited into a US bank in $ dollars. I use this account for my US expenses and credit card purchases made on my US credit cards.

Just out of curiousity can loses on conversion from US$ to UK pound be used to offset gains on the conversion?

Thanks,
John

aorobert
Posts: 2
Joined: Fri Jun 22, 2018 1:02 am

Re: US Citizen Retiring in England

Postby aorobert » Wed Sep 04, 2019 10:56 pm

Thanks for the explanation of the CGT on currency transactions. I don't think this will be a problem. My Air Force pension is direct deposited into a Lloyds TSB ofshore £ Sterling account which I use for my living expenses in England. My City pension is direct deposited into a US bank in $ dollars. I use this account for my US expenses and credit card purchases made on my US credit cards.

Just out of curiousity can loses on conversion from US$ to UK pound be used to offset gains on the conversion?

Thanks,
John
I checked, the conversion lost is not deductible or offset. Bet to find a place that doesn't charge too much for the conversion.

I know this is a very old thread, maybe the folks are still around and can advise if the aforementioned taxation methods worked as expected?

I have a weird situation in that I have CAN/US/UK citizenships but was never naturalized. Yay family. I plan to retire in the UK with my US County and US Army pensions. Everything points to taxation in the UK. Okay it's higher but oh well. Here's a kicker. To receive a military pension you must remain eligible for service. If I claim UK citizenship because I live in the UK, that may negate pension eligibility. As is I wish it was all only taxable in the US, I would save so much. I have ties to both the US and UK but the charts state that if I cannot decide which is my abode them I go by birthplace. Canada! I left Canada when I was 2. Let's not bring Canada into this. :-)

Tax guys want $500/hr to talk about this, I figured if anything is obvious I'll get it here for free.


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