I am a US citizen with a spousal visa in the UK. I will be working in the UK for 2 years until visa expires at which point I will return to the US. My UK employer offers a pension plan where both I and employer contribute to the plan.
My questions are:
- what happens to the money deposited once I leave the UK?
- how to report this income on the tax return?
Thank you in advance.
As Guya says you basically have two options;
1) declare the employer and employee contributions to the IRS for current taxation and build up a US tax free basis in the pension. If you pay more tax in the UK than you would in the US then the FTC will help pay the tax due on those contributions.
or
2) exclude the contributions using the tax treaty.
In either case you are probably going to want to use the treaty to exclude any investment gains from current US taxation.
If you are certain that you will only be in the UK for 2 years then I'd think carefully about the UK pension as it will create US tax complications and the amount might be quite small. You would be giving up the employer contribution, but you might think about putting money into a ROTH instead.....make sure you open the ROTH before you go to the UK.
