Retiring to the UK - California State Pension

hi Nan,
    We pay UK tax on my husband's UC pension.  This was quite a long and difficult discussion with HMRC, but eventually this was the ruling.  HMRC asked us for detailed information about the pension, and their decision seems to have been that since UC pensions are paid by the Regents of the University, not the State of California, it does not count as a government pension.

IMHO that is BS. UC is a state university and the UCRP pension is a 401a plan which is by IRS definition a Government pension. HMRC does not know about US plans.....but some simple Googling would have got them the correct answer.

Having said all that if you are a UK resident then HMRC can take the stance that the savings clause applies and Article 19 is moot and it they can tax your UC pension just like any other foreign pension. So HMRC probably got the right answer, but for the wrong reason.

IMHO that is BS. UC is a state university and the UCRP pension is a 401a plan which is by IRS definition a Government pension. HMRC does not know about US plans.....but some simple Googling would have got them the correct answer.

Having said all that if you are a UK resident then HMRC can take the stance that the savings clause applies and Article 19 is moot and it they can tax your UC pension just like any other foreign pension. So HMRC probably got the right answer, but for the wrong reason.

Hi Orkneytime! Was hoping you hadn't blown away up there. The kid will be out your way soon on a field trip, I think. Assuming the ferries are running!  Isn't your husband a UK citizen and you guys are settled there with your own purchased home? I think that makes a difference on the pension - we are kind of transient, for a few years, and neither of us are UK citizens. Or maybe it just depends on whose desk at HMRC the decision falls? But I'm starting to get confused....

Nun - Interesting. UCRP is a mandatory defined benefit plan. There's nothing voluntary about it at all - they ding one's paycheck before one even sees it, just as they do for our social security tax and the medicare tax.  (I also have a 403B, the educational equivalent of a 401K, to which I voluntarily contribute.) But that the UC Regents are not a governmental entity??? http://regents.universityofcalifornia.edu/about/    "About the Regents...

The University is governed by The Regents, which under Article IX, Section 9 of the California Constitution has "full powers of organization and governance" subject only to very specific areas of legislative control. ..." The Board consists of 26 members as defined in Article IX, Section 9, all of whom have a vote:     18 regents are appointed by the governor for 12-year terms; One is a student appointed by the Regents to a one-year term; Seven are ex officio members — the Governor, Lieutenant Governor, Speaker of the Assembly, Superintendent of Public Instruction, president and vice president of the Alumni Associations of UC and the UC president.  ... In addition, two faculty members — the chair and vice chair of the Academic Council — sit on the board as non-voting members... The Governor [of the State of California] is officially the president of the Board of Regents...."

And from that they got that it was NOT a governmental agency? Wow!    It's going to be interesting living there, I think. I will need to seriously readjust my perceptions.  (Especially if Scotland splits off from England, since we'll be in Scotland. THAT will be even more interesting!)

But it's all ok, I mean, I don't mind paying taxes as a resident if I actually am a resident - we may well stay there for the duration (it all depends on my daughter's career). It'll be a year or two before we could tell in a serious way how the wind was blowing for us.  It's just that if I am not a permanent resident and didn't have to pay the extra, it would be good for our budget, since I'm supporting the two of us on my pension and SS while trying to get the kid through her degrees. Given that I'm not able to count on the exchange rate being as decent as it is for us right now for the future (we'll be in a world of hurt if the dollar sinks badly), I like to hedge my bets as much as I can to cover potential problems down the road.

I've done some more reading and found things that say (for immigration purposes) that Irish citizens are considered as "settled" simply for being from the common travel area. Don't know how HMRC feels about that, but that info sounds very much like they'd consider me a permanent resident (or something equivalent) once I set foot the country.

Either way, I'll plan for the worst case and be happy if I end up with the best case.  It'll all work out - who knows, I might get a different answer from HMRC!

Oh, a few more questions. Does HMRC allow you to take off student loan interest from your taxes?  I am assuming not, since they are not UK student loans. And would it be that I'm taxed on 90% of SS and the UC pension combined? Or does SS not qualify for the 90% rule?

Also, since I'll be paying the rent and providing food and living necessities (utilities, etc.) for the both of us, will I be able to count my daughter as a dependent when I pay UK taxes even though she's an adult? She will be (hopefully) working part time to help pay for the tuition/fees. (She won't qualify as an in-country resident, so Uni will cost a good chunk of money each year). She won't be eligible for UK student loans and their generous repayment terms, and I'm urging her to do everything she can to not go deeply into debt with US student loans for a career that will probably not pay all that well. If she can work while going to University, without it hurting her studies, I'm hoping she'll be able to do that. Thus, if she counts as my dependent on taxes (which she, in actuality is), it'll help.

Appreciate any advice you can provide, thanks! - Nan

Yes, the UCRP is a defined benefit 401a plan. I have a similar 401a plan from MA. All that is needed to prove the Government pension status of the UCRP plan is that it is a "401a".
Your 403b is a bit trickier as that's fro universities and non-profit organizations, but if we look through to the funding source that is a Government pension/retirement account too.
I've never got an answer from HMRC about 457s.....they are definitely a Government funded account, but are they classed as a pension under the treaty?

IMHO that is BS. UC is a state university and the UCRP pension is a 401a plan which is by IRS definition a Government pension. HMRC does not know about US plans.....but some simple Googling would have got them the correct answer.

Having said all that if you are a UK resident then HMRC can take the stance that the savings clause applies and Article 19 is moot and it they can tax your UC pension just like any other foreign pension. So HMRC probably got the right answer, but for the wrong reason.

I don't know how much of HMRC's decision was based on the pension being paid by the Regents, rather than the state itself.  I do know that they deliberated over it all for months, and the decision had to go to some higher-up in the system before it was handed down to us.

Although the Regents are appointed by the Governor, they are not a state agency.  As my husband says (he was a  senior administrator for many years at UC) he knows very well indeed how independent the Regents can be!   

Hi Orkneytime! Was hoping you hadn't blown away up there. The kid will be out your way soon on a field trip, I think. Assuming the ferries are running!  Isn't your husband a UK citizen and you guys are settled there with your own purchased home? I think that makes a difference on the pension - we are kind of transient, for a few years, and neither of us are UK citizens. Or maybe it just depends on whose desk at HMRC the decision falls? But I'm starting to get confused....
 Nan

hi Nan,
    Nope, DH is a US citizen!

    I'm sending you a private message re field trips etc.

I don't know how much of HMRC's decision was based on the pension being paid by the Regents, rather than the state itself.  I do know that they deliberated over it all for months, and the decision had to go to some higher-up in the system before it was handed down to us.

Although the Regents are appointed by the Governor, they are not a state agency.  As my husband says (he was a  senior administrator for many years at UC) he knows very well indeed how independent the Regents can be!   

This is not the point at all....a 401a plan is a Government plan by definition. We don't have to worry about Reagents at all. Any plan that is organized as a 401a plan is a Government plan!

This is not the point at all....a 401a plan is a Government plan by definition. We don't have to worry about Reagents at all. Any plan that is organized as a 401a plan is a Government plan!

Well, all I can tell you is that it WAS a point for HMRC in our case, and repeat that we were told the decision was not made by a junior official.  So make of that what you will.

Well, all I can tell you is that it WAS a point for HMRC in our case, and repeat that we were told the decision was not made by a junior official.  So make of that what you will.

The reason for the decision is incorrect, but the decision itself seems correct, IMHO. Tax officials often come to the wrong conclusions. The Governmental status of pensions like UCRP, CalPERS or MSERS in my case is obvious because they are 401a plans financed by Government funds. Unfortunately the inability of HMRC to get that right does not surprise me. The IRS is equally at sea with many UK retirement accounts.

The reason for the decision is incorrect, but the decision itself seems correct, IMHO. Tax officials often come to the wrong conclusions. The Governmental status of pensions like UCRP, CalPERS or MSERS in my case is obvious because they are 401a plans financed by Government funds. Unfortunately the inability of HMRC to get that right does not surprise me. The IRS is equally at sea with many UK retirement accounts.

Shhhhsssh!!! Don't say those three letters!!!! They'll HEAR you, and then....        

The remaining questions:

Since I'll be a "resident", would both SS and UC be taxed at 90 combined? Or does SS not qualify for the 90% rule?

Also, since I'll be paying the rent and providing food and living necessities (utilities, etc.) for the both of us, will I be able to count my daughter as a dependent when I pay UK taxes even though she's an adult? I can here if I'm covering more than 50% of her living expenses, not sure about the UK - did a lot of searching through docs and tax calculators and am not getting anywhere. (They all seem to point me to regulations concerning a disabled relative or a child under 21 - as long as they are in full-time education. She's well past 21.)

She won't qualify as an in-country resident, so Uni will cost a good chunk of money each year as a "foreign" student. She won't be eligible for UK student loans and their generous repayment terms, and I'm urging her to do everything she can to not go deeply into debt with US student loans for a career that will probably not pay all that well. If she can work while going to University, without it hurting her studies, I'm hoping she'll be able to do that. Thus, if she counts as my dependent on taxes (which she, in actuality has been/is/will be), it'll help.

Thanks again!

N

I don't know how much of HMRC's decision was based on the pension being paid by the Regents, rather than the state itself.  I do know that they deliberated over it all for months, and the decision had to go to some higher-up in the system before it was handed down to us.

Although the Regents are appointed by the Governor, they are not a state agency.  As my husband says (he was a  senior administrator for many years at UC) he knows very well indeed how independent the Regents can be!   

So if I worked for San Diego State University (who I think gets their pension through CalPers) instead of the University of California, San Diego, I'd be paid by the State? Since HMRC will pigeonhole me into settled/resident one way or the other, I'd bet, it won't matter, but...

That is just so... bizarre! 

She won't be eligible for UK student loans and their generous repayment terms

If it's any consolation, look for them to privatise in the next few years, probably retroactively. This Government is not keen on higher ed for the working class.

The remaining questions:

Since I'll be a "resident", would both SS and UC be taxed at 90 combined? Or does SS not qualify for the 90% rule?

Both pensions qualify for the 90% rule.

For those of us with straight forward sources of income, doing UK tax calculations are quite simple. In fact, they can be done on the back of an envelope,....a very small envelope.

For the sake of an example, let's say your total income is £32,000 in US pensions (£10k SSA and £22k UC), and you have all those funds sent to the UK. Since they are remitted to the UK, you'll likely want to pay tax under the arising basis (tax resident). With the 10% reduction for foreign pensions, only £28,800 of that amount is considered. In addition, for 2015/16, the personal allowance is £10,600, so only £18,200 will be subject to tax. Tax on £18.2k at 20% is £3,640. That's all there is to do.

Also, since I'll be paying the rent and providing food and living necessities (utilities, etc.) for the both of us, will I be able to count my daughter as a dependent when I pay UK taxes even though she's an adult...... She's well past 21.)

....Thus, if she counts as my dependent on taxes (which she, in actuality has been/is/will be), it'll help.

In the UK, each individual is responsible for their own tax situation, so, for example, married filing jointly does not exist in the UK. I'm not aware of any special allowances for supporting children who are university students, especially if they are over 21 years of age and not resident in the UK for tax purposes. I could be wrong, and hopefully someone will correct me if this incorrect. 

My opinion (for what it's worth) is that the UC pension is a Government pension (UC being a state university and the pension being a 401a) and that the US can tax it and the UK can also tax it if HMRC decides that the OP is a "permanent resident" of the UK.....whatever that means for the UK.

My question is who gets primary taxation authority....US or UK. Will HMRC accept a FTC for US tax paid? or should you resource the pension by treaty so you can take the FTC in the US?

My question is who gets primary taxation authority....US or UK. Will HMRC accept a FTC for US tax paid? or should you resource the pension by treaty so you can take the FTC in the US?

Good question, nun. Undoubtedly, the IRS will say it's the US source income of a USC so they have the first bite. HMRC will say it's income remitted to the UK for a UK resident, so they have primary taxing rights.

At the end of the day, it's still easier to pay the tax in the UK and then claim FTC''s in the US.

I had a problem about 3 months ago thanks to an error made by the HMRC computer regards foreign pensions paid into the UK. I should clarify and say it was a problem for US tax, but absolutely no problem for HMRC and UK tax. I called HMRC and talked to what seemed a fairly knowledgeable lady. Her first response was "can't you just claim credits for tax paid (to France in this case) on your UK self assessment?", so they seem OK with handling things in that fashion.

As an aside, I did point out that according to the UK/France treaty, the income was taxable only in the UK.   

Both pensions qualify for the 90% rule.

For those of us with straight forward sources of income, doing UK tax calculations are quite simple. In fact, they can be done on the back of an envelope,....a very small envelope.

For the sake of an example, let's say your total income is £32,000 in US pensions (£10k SSA and £22k UC), and you have all those funds sent to the UK. Since they are remitted to the UK, you'll likely want to pay tax under the arising basis (tax resident). With the 10% reduction for foreign pensions, only £28,800 of that amount is considered. In addition, for 2015/16, the personal allowance is £10,600, so only £18,200 will be subject to tax. Tax on £18.2k at 20% is £3,640. That's all there is to do.

In the UK, each individual is responsible for their own tax situation, so, for example, married filing jointly does not exist in the UK. I'm not aware of any special allowances for supporting children who are university students, especially if they are over 21 years of age and not resident in the UK for tax purposes. I could be wrong, and hopefully someone will correct me if this incorrect.

Oh, good on the 90%. It's still close to $6,000 but that's not a lot more than I would have paid in the USA if I was taxed on everything here, and since I can then take that as a credit on my (lesser amount) US tax, it should be relatively clean and painless (famous last words) to file.

Interesting on the personal exemptions. So if you have a dependent adult living with you who has no income (or only a very minimal income) like an elderly granny or offspring that either never left or have come back home and aren't working, there are no tax breaks at all? I'll investigate further. I never thought I'd say that the IRS was generous, but....

We'll have to sort her taxes out later as well. I believe that if she gets student aid in the UK (of any sort) that is not taxable in the UK, and it won't be taxable in the USA. Unlike now. Her non-tuition aid is most definitely taxed at the usual rates here in the USA, even though it's been used to pay for education-related expenses (housing in the UK temporarily, airfare, food). When she hits grad school I know that should she receive aid (we wish!) above a certain point there that it's taxable there, but I don't think it is for anything that literally goes directly to the school, just living expenses - and I don't think she can get much for living expenses (hence, my supporting her). Will deal with that later and hope her school offers a tax advice clinic for her.

Changing student loans to the private sector retroactively? That sounds ominous. The one good thing in the US about private student loans is that they can be discharged through bankruptcy. The govmt. loans follow you pretty much until you die.