UK Individual 2002 / US 8802 / 25% tax free element

Hello,

I am full time US resident (Green card) and left UK permanently a while ago. I had  a UK limited company (and yes, I filed 5471s) which was closed last year and just struck off. I have just filed my final UK personal tax return and have been advised by my UK accountant I don't need to file any more UK returns, and that I should use the UK form Individual_2002 in order to obtain an NT tax code (I believe that's what its called) which I can then give to my SIPP providers. I need this because I have just started taking income from my UK SIPP, and I don't want this taxed in the UK. Until now I have taken a good few months withdrawals (all in 2007 and after April so not yet reported to US IRS) but these have been under the threshold for UK tax so no UK tax withheld.  I want to increase these withdrawals now up to the US 10% tax threshold ($26,300 according to my accountant including the 25% tax free element) and not pay UK tax. Of course this will be declared on my US return.

I file FBARS and 8938.

So - is my understanding correct that I fill in both the UK individual 2002 form, and the US 8802 - and send BOTH these to the US IRS? I am supposing there will then be some communication between the two tax agencies and several years down the road, I may get this tax code (said with tongue in cheek, but I bet it's not that simple)? Do I then send that to my UK SIPP provider or does HMRC do that?

I am not taking a lump sum from my UK SIPP, rather I am taking monthly periodic payments of the same amount. And I want to increase that amount so I stay in US 10% tax band. Based on a lot of reading I have done here and elsewhere I plan on taking the position that 25% of this income is tax free in the US (Art. 17(1)(b) - I know this has been hotly debated here and elsewhere - no need to open that again). So how do I report this? Do I report my pension income less 25% and make a claim on my 8833 (which I already file) for the 25% I didn't report?

Thanks Art

So - is my understanding correct that I fill in both the UK individual 2002 form, and the US 8802 - and send BOTH these to the US IRS? I am supposing there will then be some communication between the two tax agencies and several years down the road, I may get this tax code (said with tongue in cheek, but I bet it's not that simple)? Do I then send that to my UK SIPP provider or does HMRC do that?

Yes you send both to the IRS. The IRS communicates with HMRC and they issue the tax code direct to your SIPP provider. You get the usual copy of the Notice of Coding. Mine took about four weeks, but that was some time ago and it was that simple!

Anchor thanks for that. So how do you exclude the 25%.

Also, on the individual 2002 is asks this:

The location of the Service Center where your latest tax return was filed and the date on which it was filed.

Is that asking for my latest UK return or my latest US return?

Thanks

Anchor thanks for that. So how do you exclude the 25%.

Also, on the individual 2002 is asks this:

The location of the Service Center where your latest tax return was filed and the date on which it was filed.

Is that asking for my latest UK return or my latest US return?

Thanks

I'm not sure what you are asking about the 25%.

2002 is a UK form so your answer refers to the UK Service Centre ie from your latest contact with HMRC on a Notice of Coding or other HMRC correspondence.

Well, let's say you receive $10K per year pension - if 25% of that is tax free do you only report $7.5K on your US tax and reference 2.5K on your 8833?

Thanks

The background is that Art is a green card holder, not resident in the UK and has a UK pension arrangement.

The tax position is governed by Article 17 of the UK US double tax treaty. In brief-
•   The 25% lump sum is exempt from tax in the US. (It is exempt from UK tax under UK domestic rules.)
•   The remaining element is exempt from tax in the UK. (It is taxable in the US under its domestic rules.)
This is not a matter of any controversy, unlike some other scenarios.

Art should complete a form DT-individual
https://www.gov.uk/government/publications/double-taxation-treaty-relief-form-dt-individual
send it to the IRS who should stamp it and return it to HMRC. This acts as a certificate of residence in the US. That would allow HMRC to issue a NT (No Tax) Notice of Coding to the pension provider.

Hi and thanks for that reply. What I actually did, on the advice of my UK accountant, was to fill in  UK individual 2002 form, and the US 8802 and sent those to the IRS. I understand this will also generate an NT Tax code which will be sent to my pension providers in the UK. I note the 2002 form has very similar questions to the form to which you directed me. As long as I get the NT tax code, whichever route I take, I think it's all good.

My current question is how to report the 25% tax free element on US taxes. Do I declare my pension income net of 25% and claim relief from the 25% on my 8833?

Thanks

A

My current question is how to report the 25% tax free element on US taxes. Do I declare my pension income net of 25% and claim relief from the 25% on my 8833?

Enter the full amount on line 16a and the taxable amount in 16b (ie 75% of the full amount). Put a note at the side to indicate it's covered by Article 17.1b. If you are claiming this is pension income then there is no need to file a treaty claim on 8833.