FATCA, NISA....losing touch with reality

1. Will the health insurance cover you in the UK? (You seem to indicate it has in the past.) If so, you treat it as additional insurance, just like buying a BUPA policy in the UK for additional coverage. You will be covered by the NHS (subject to terms of your UK visa). If it is a US Government pension, and you are not a UK citizen, will it be taxed in the UK? You need to research this further. If it is taxed in the UK, my guess, and this is only my opinion and I may be wrong, is the $1279 figure.

2. US SS PAYMENTS MADE TO YOU IN THE UK ARE NOT TAXED IN THE US. PERIOD. FULL STOP. NO QUESTION. THEY GET ZILCH, NADA, ZERO, NOTHING, ZIP, EFF ALL. THE UK GETS TAX ON 90% OF WHAT IS SENT TO YOU. PERIOD. FULL STOP!

Yes, the Govt health insurance worked in the UK.....although you had to use certain cites only......couldn't use Harrogate hospital for instance, but could use the Duchy(also in Harrogate). The insurance is good if you just want something done.....NatHealth really took good care of me once when I had a liver virus (not hepatitis) and wasn't part of the US health insurance. I still have my UK insurance number.  

Even though I think you made it obvious that the US will not tax my SS....I was more interested in whether it would count even that 50% towards raising my income level. It's big to me in that if it isn't counted....then filing separately will be eezypeezy since the money I take out of the TSP won't bump me up into a higher tax bracket. In my head there is a difference between not taxing the SS.....but still counting it against me on money that would take me over the 25% threshold. But like I said.......if the US doesn't even do that (count the SS towards ANY income) then I think it will be easy to stay in the 15% bracket for the US.

I made an Edit to my previous post, probably while your were typing your reply.

1040, Line 20a  - the amount paid by SSA for the tax year. Line 20b - the amount that is taxable and the figure used to arrive at your AGI, is $0.

IMHO, and I may be wrong. (but I don't think so)

All this assumes you apply the Treaty.

There is some good stuff here from you folks....

1. My pension is technically $1279 a month. But if I wanted to keep my Govt health insurance (I most certainly did....at just over $300mth for both of us) it gets paid directly before any money comes to me. I get $962mth in the bank at the moment. There might be a point in the future where I wish to drop it and just go with National Health....they always did pretty well for me while I was living there. Does the UK want to know the $1279 number.....or the $962 number?

Well the $1279 is the taxable number, but if the pension is from money earned while you were working for a US state or federal government it will not be taxable in the UK, just the US! What insurance are you paying for, if it is Medicare you can't use it in the UK, but there is an argument to keep paying it if you ever want to return to the US because the Medicare premiums go up by 10% for every year you don't pay them. I'd look carefully at the US coverages if it is private health insurance, there is usually some residency requirement. If it's US federal/state care there's probably a plan that will cover you, but do you need it with access to NHS?

2. If the SS is only taxed in the UK, does that mean it won't be counted as income in the US? I believe you are normally supposed to count 50% of the SS towards your income on US taxes.

The SSA will pay your SS with no withholding. You are not liable to US tax on it if you are a UK tax resident. None of it is taxable on you 1040 and you include 90% of it on your UK taxes...I don't know if you can claim a credit on your US taxes for the UK tax you pay on SS.....I imagine not...maybe the better informed can answer that.

3. My TSP money is supposedly ignored by the UK....fine, I'll just pay the taxes in the US as I suck the money out each year. So I don't have to declare any of that income on the UK taxes? Once I sell off some more Vanguard after the first of the year we will only have about $150K left.....and $63K or so of that is ROTH...so also ignored. Capital gains on what is left shouldn't be enough to worry about.

TSP is a Federal plan so no UK taxes on it unless you become a UK citizen. Leave it off the UK self assessment. Money from the ROTH doesn't get included on US or UK tax forms....gains and income are tax free in US and UK, but the rest of your money in Vanguard (if it isn't in other retirement accounts) is taxable in the US and the UK. So you will be looking at tax on dividends and capital gains. There are resourcing and minimum tax rules set out in the treaty for the treatment of those. The US will want 15% tax on your dividends and you'll have to figure out any conflicts in the way capital gains are treated by the US and the UK. You might want to invest in Vanguard ETFs that don't issue capital gains distributions to simplify returns.

Once we sell the house this spring (hopefully) and move back our account in the UK should be pushing 300kPounds. After the first year or so that should be pretty well destroyed if we buy a house (180-230K range) and a little Hyundai i10, and furniture etc. But some of that I need to leave alone so I can keep meeting the VISA cash requirements 2 more times. Still thinking about having one joint account and then one to stash most of it in my wife's name.....we'll see. We will need a new Will when we move back. If my wife chokes to death on Minstrals when she gets back, that hopefully solves the issue of where the money is.

How you orgainze the transition will dictate whether you file FBAR or FATCA, but those forms aren't really that bad, just annoying. I will tell you that the investing environment in the UK is no where near as inexpensive or well run if you are use to Vanguard in the US. You can simply put any proceeds from the sale of a house in the US bank or with Vanguard until you have things sorted in the UK. I'd advise that you rent for 6 months to a year before you buy a house so that you can research areas you like and enjoy the process rather than feeling rushed.

Starting to think theOAP might have the right idea on just sucking it up. Analysis paralysis on trying to figure out the right thing might end up killing me.

You can certainly get lost in a deep rabbit hole easily. This is your retirement and your money should be working for you. not the other way round. Life is more than taxes and finances.....although maybe that's not really true for people on this forum.

All this assumes you apply the Treaty.

Well the $1279 is the taxable number, but if the pension is from money earned while you were working for a US state or federal government it will not be taxable in the UK, just the US! What insurance are you paying for, if it is Medicare you can't use it in the UK, but there is an argument to keep paying it if you ever want to return to the US because the Medicare premiums go up by 10% for every year you don't pay them. I'd look carefully at the US coverages if it is private health insurance, there is usually some residency requirement. If it's US federal/state care there's probably a plan that will cover you, but do you need it with access to NHS? My insurance is Blue Cross...I'm still only 57 so Medicare is a ways out. Thought I read already that Medicare is no good in the UK. Unless something really really changes....I have no urge to move back to the US. I've lived out of the US for most of my life as it is so I will probably just ignore Medicare....certainly don't want to have to pay anything. The advantage to having that private health insurance is that if you want/need something done.....sometimes the NHS just says it's not bad enough and tough luck. One of my wife's son's has a huge cyst on the back of his head....NHS won't touch it until it get's bigger than 2 inches or so. He has since appealed and now it looks like they will do it....but it's been a couple of years. We had a surgery Birstwith (Nr Harrogate) that was quite good....if we had access to a place with a good reputation I would very likely just drop the US health coverage.

The SSA will pay your SS with no withholding. You are not liable to US tax on it if you are a UK tax resident. None of it is taxable on you 1040 and you include 90% of it on your UK taxes...I don't know if you can claim a credit on your US taxes for the UK tax you pay on SS.....I imagine not...maybe the better informed can answer that.

TSP is a Federal plan so no UK taxes on it unless you become a UK citizen. Leave it off the UK self assessment. Money from the ROTH doesn't get included on US or UK tax forms....gains and income are tax free in US and UK, but the rest of your money in Vanguard (if it isn't in other retirement accounts) is taxable in the US and the UK. So you will be looking at tax on dividends and capital gains. There are resourcing and minimum tax rules set out in the treaty for the treatment of those. The US will want 15% tax on your dividends and you'll have to figure out any conflicts in the way capital gains are treated by the US and the UK. You might want to invest in Vanguard ETFs that don't issue capital gains distributions to simplify returns. I'm planning on going the ETF way after the first of the year. Planning on selling off some more of my Vanguard at that time. I would just as soon move more money over while the Pound rate is as low as it is.

How you orgainze the transition will dictate whether you file FBAR or FATCA, but those forms aren't really that bad, just annoying. I will tell you that the investing environment in the UK is no where near as inexpensive or well run if you are use to Vanguard in the US. You can simply put any proceeds from the sale of a house in the US bank or with Vanguard until you have things sorted in the UK. I'd advise that you rent for 6 months to a year before you buy a house so that you can research areas you like and enjoy the process rather than feeling rushed. We have already messed up a couple of times buying in hurry....we don't plan to this time. Renting for at least 6 months. Although this is our favorite house at this time......and it's right next to a good golf course.
http://www.rightmove.co.uk/property-for-sale/property-31986252.html?premiumA=true

You can certainly get lost in a deep rabbit hole easily. This is your retirement and your money should be working for you. not the other way round. Life is more than taxes and finances.....although maybe that's not really true for people on this forum.

The Blue across insurance looks good, it must be highly subsidized. I have a state plan that would cover me anywhere in the world and I could only aford it after I retire and only have to pay 25% of the premiums.

If you are thinking of bringing substantial amounts of money to the UK remember that you must avoid PFICs, so stick with bank and savings accounts of keep them in your wife's name only.

None of it is taxable on you 1040 and you include 90% of it on your UK taxes...I don't know if you can claim a credit on your US taxes for the UK tax you pay on SS.....I imagine not...maybe the better informed can answer that.

As you well know, one of the problems F4m will have if he decides to file tax without the aid of an accountant is finding any instructions/directions within the IRS publications/information explaining where to declare foreign pensions and how to calculate/ report them. You sense they should be reported, but information from the IRS regarding foreign pensions is like finding hen's teeth in the dust.

I've always taken the stance that by invoking the treaty (not declaring SS payments as taxable by the IRS) I also can not use the UK tax paid on them when completing form 1116 to calculate FTC's. I proportionally reduce UK tax paid by the amount of the US SS to all other like income. But, I can find no written confirmation, anywhere, especially from the IRS, which provides any insight. It just 'feels' right.

Guya's comment presents an intriguing consideration, and another conundrum. I've never seen someone seriously recommend to opt out of the treaty, but what happens in the confines of an accountants office, I imagine, would be mystical to most of us, but done with a purpose. If you opt out of the treaty for the US (declare US SS on 1040 in line 20b) and pay the additional tax, can you opt out of the treaty on the UK side? Will HMRC allow you to opt out, even though you receive the funds in the UK? If not, then you're double taxed to begin with, but DO use UK tax paid on them to calculate FTC's on 1116. It will have the same NET effect on the results for 1040, so why do it. Well, one reason could be to gain additional carryover/carryback FTC's. (I've thought of doing this in the past.) I suppose it works in a year you need additional FTC's. But again, what is your goal? Simplification, or going for broke to reduce any possibility of tax both now or in the future?

Rabbit hole, indeed.

Dang.....now I had to look up PFIC's. Hoping that won't get me....need to read again. Right now the pile of money we are taking back will stay as cash or in NISA. As I sell off the Vanguard/TSP money that will likely stay either in NISA (wife's name) or cash. Still planning on keeping a fair amount of money in wife only accounts. Her pensions don't start until she hits 60(small one), 65(another small one) and then 67 for the bigger State pension so she has plenty of room without even thinking about the 10KPound limit. She will just be turning 55 this Spring.

Ahhh...theOAP writes as I was trying to post this. Your last sentence on simplification is pretty important. I like money.....but to drive myself to more drinking isn't likely worth it.....unless the money savings is significant. I wouldn't think with the money we have it would be that much......I hope.

F4m, just to clarify my post, I don't think you will have to worry about foreign pensions regards your income, but if you ever wish to run comparisons for filing separately versus jointly once your wife's pensions become active, it becomes a factor.

Personally, IMHO, there's too much to lose in ever filing jointly, but how you eventually handle your affairs, and the ramifications, is your business.

You might have to spell it out for me. What are the negatives in filing jointly? I was kind of leaning towards filing jointly in the years leading up to my wife getting her pensions. Years 2016-2024 or so.  I figured I could sell off bigger chunks of the TSP and still stay under the 25% bracket. From your comments it sounds like that would be a mistake.

You might have to spell it out for me. What are the negatives in filing jointly? I was kind of leaning towards filing jointly in the years leading up to my wife getting her pensions. Years 2016-2024 or so.  I figured I could sell off bigger chunks of the TSP and still stay under the 25% bracket. From your comments it sounds like that would be a mistake.

If you file jointly all tour wife's assets become US taxable...so bye bye tax free NISA and also hello PFIC issues if your wife invests in UK based mutual type funds. Also once you file jointly there is no going back you have to keep filing jointly. I imagine you might get out of that if you divorced.

OAP confirms my feeling that you wouldn't take a US credit for UK tax paid on US SS, basically because there's no US tax due if you use the treaty.

For wealthy individuals implementing more complex tax strategies there might well be situations where it's best to ignore the treaty, but for us mortals who want to do things on our own the treaty is useful.

I've always taken the stance that by invoking the treaty (not declaring SS payments as taxable by the IRS) I also can not use the UK tax paid on them when completing form 1116 to calculate FTC's. I proportionally reduce UK tax paid by the amount of the US SS to all other like income. But, I can find no written confirmation, anywhere, especially from the IRS, which provides any insight. It just 'feels' right.

I must admit that this has my head spinning.  Am I right that you have to file an IRS form 1116 for each tax credit you are claiming?  If so, how do you calculate each figure?  e.g. When I move back in 2016 I will have 2 US pensions and 2 UK pensions.  (OAP and SS will still be a few years away)  We'll also have interest, dividends and cap gains on my wife's US investments, plus some small amount of interest on UK savings.

Given that we will each be filing in the UK and be filing jointly in the US (both USC's) and each have the 10k GBP tax, do we just take the total UK tax paid and estimate how much of it was against each of the income sources?

A VERY simple example may be that my 4 pensions total 30k GBP, which will have me paying 20% tax on 20k, which is 4k.  Do I complete 4 IRS 1116 forms claiming a credit of 1k against each pension?

Alan.....my mind has just shut down......more beer is needed....

Alan.....my mind has just shut down......more beer is needed....

Now that you mention it, I do believe it is Grouse O'clock here as well.  Methinks it is time for a wee dram....

Now that you mention it, I do believe it is Grouse O'clock here as well.  Methinks it is time for a wee dram....

Classic answer....

I must admit that this has my head spinning.  Am I right that you have to file an IRS form 1116 for each tax credit you are claiming?  If so, how do you calculate each figure?  e.g. When I move back in 2016 I will have 2 US pensions and 2 UK pensions.  (OAP and SS will still be a few years away)  We'll also have interest, dividends and cap gains on my wife's US investments, plus some small amount of interest on UK savings.

Given that we will each be filing in the UK and be filing jointly in the US (both USC's) and each have the 10k GBP tax, do we just take the total UK tax paid and estimate how much of it was against each of the income sources?

A VERY simple example may be that my 4 pensions total 30k GBP, which will have me paying 20% tax on 20k, which is 4k.  Do I complete 4 IRS 1116 forms claiming a credit of 1k against each pension?

You do a 1116 for each different category of income...so all the pensions will go on a single 1116. Being a US citizen often leads to certain parts of the treaty being ignored and that's true for how your pensions might be taxed. Assuming that you don't have any government pensions, and you are taxed on an arising basis in the UK you must pay UK tax on 90% of your foreign pensions and full UK tax on UK pensions. You then have to pay US tax on both the US and UK pensions, but you claim the foreign tax credits and apply any US tax withholding to you US taxes too, so you should get a big refund.