General tax help please!

Hi

My partner and I are looking for some advice about taxes-we find it all a bit overwhelming!

Im a UK citizen living in the UK doing my own thing paying UK tax.
My partner is american and just retired and is about to move here.

He was a teacher and just retired at 53.  His only source of income for the next 6 years is his pension paid by the state of MD

1 - My 1st question is about his pension

i contacted the UK Inland Revenue last year when we was planning retirement and they told me that, under the tax treaty, a pension paid by the US Government &/or local government is NOT taxable in the UK but only in the US.  She added they class the State of MD as such an entity.

We were further told if he started to have other income earned in the UK he would then need to contact the Inland Revenue to get a national insurance number to then pay tax at source. 

We were then told that when he wants up draw on his private pension (sorry i cant recall what its called a 401k or something like that) it then becomes a different matter and he needed to take proper advice.

That all seemed fine BUT now my partner has contacted the IRS just to double check this and was told NO the USA does not take tax on a pension but he needs to pay tax in the UK on it.

Does anyone know which is right?

2 - 2nd Question is about Maryland Taxes

Last year my partner was told by is tax advisor that provided he turned  in his drivers license; sold his house and had no ties to MD he would not be liable to MD tax as he would, by doing those steps, cutting ties to MD.

He has now been told by someone from the MD tax helpline that YES he will still be liable for MD taxes as that was his last home before leaving the USA.

Again does anyone know if this is right and secondly can he keep a MD bank account or will this be classed as a tie

3 -Lastly, he's found H&R Block have a UK office and its on an air force base.  Has anyone used them?  He scared that when he gets here no one organization will know the UK and USA and MD taxes codes and he will end up paying the wrong amounts to the wrong people

God, we thought the visa application was hard-this tax thing is even worse!

Thanks to anyone in advance who has taken the time to read this post and thanks to anyone who can help us!

If he wants to use a professional he would do best to use one qualified in both countries. 

I do not know if the firm mentioned is such a firm.

1 - My 1st question is about his pension

2 - 2nd Question is about Maryland Taxes

3 -Lastly, he's found H&R Block have a UK office and its on an air force base.

1 - Both may be right. For tax purposes, the treatment of a Government pension is different to the treatment of a personal pension (a 401k or whatever). It would depend on which pension the respective agency thought they were commenting on, and for which country.

2 - Six or seven States are difficult to break ties with. Some States break sensibly, and others hold to the principle that if you don't live there, you aren't a resident. I don't know where Md stands, but I would suggest you go to the Md web site and search for 'residence' or 'foreign resident' to see what you can find. On some sites, it's easy to find; on others, you may have to spend some time searching. Your partner will certainly need to file for their last year of residence.

3 - I know nothing about it.

Most on this site file a Form 2555, and their tax returns can be fairly easy. Once pension income enters the picture, it becomes much more difficult (and you can not use 2555 for pension income). As a result, if you wish to investigate this on your own, you will need to spend a fair bit of time doing the research. If you are not comfortable with that option, then (as Guya suggests) it would be best to contact a professional who has knowledge (and qualifications) in both countries.

 

HMRC are correct about your husband's MD teacher's pension. As he is not a UK citizen his MD state pension will only be taxable in the US....and MD, although it might well be paid free of MR state tax so that wouldn't be an issue. If he lives in the UK and were to take UK citizenship he would become liable to UK tax on the MD state pension.

For the 401k he will definitely have to pay US income tax on any withdrawals. Whether he then has to pay UK tax on them will depend on how he's taxed by the UK ie on an arising or remittance basis. I think there's been some changes to the tax residency rules, but I imagine if he brings the money to the UK he'll have to pay UK income tax. The US 401k administrator will withhold 20% tax at source, he'll have to pay the full UK tax on 90% of the withdrawal and then use the UK tax paid and the 20% US withholding on his 1040 to calculate how much US tax is due......this will probably result in a US tax refund.

For the MD tax residency issues your husband will remain liable for MD taxes until he becomes domiciled in another place. So if he breaks ties with MD (keeping an MD bank account shouldn't be an issue) and moves to the UK with the intention to live there permanently he will only be liable for MD tax on MD source income.

Here is some reading about this

http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it37.pdf