Retiring to the UK - California State Pension

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....

There is an explanation as to how each of the situations you identify are handled by the individual, but trust me, you don't want to hear all the explanations at this time. Suffice to say, there are allowances (benefits) that cover these situations for the individuals involved. You also might be amazed to realise that the majority of UK citizens do not have to file a tax return. It's not because they aren't paying taxes, some are paying at a rate of 40%, but it's just how the system works over here.

There are very few deductions, exclusions, or exemptions when compared to the US. I'm sure with time you'll develop a good understanding of how things work on this side of the pond.

Changing student loans to the private sector retroactively? That sounds ominous.

It is. And as the loans were, in the grand scheme of things, pretty fair (not so productive from a lender's standpoint), there is talk about changing the conditions to 'entice buyers'. This could be raised interest rates and enhanced collection capabilities. 

http://uk.businessinsider.com/chancellor-george-osborne-to-sell-off-1998-2012-student-loan-book-now-vince-cable-gone-2015-5

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.

If the IRS considers the UC pension as a Government pension paid to a US citizen I just wonder whether it will want primary taxation authority too and how will it view an attempt to resource a US Government pension to the UK so that a FTC can be claimed? Would it be best to pay the US and claim the FTC in the UK?  or is it just another pension and the UK get's the primary the taxation authority because of residence?

If the IRS considers the UC pension as a Government pension paid to a US citizen I just wonder whether it will want primary taxation authority too and how will it view an attempt to resource a US Government pension to the UK so that a FTC can be claimed? Would it be best to pay the US and claim the FTC in the UK?  or is it just another pension and the UK get's the primary the taxation authority because of residence?

It just means I have to file a US tax return and a UK tax return, right? I have to do that anyway, since I have to report the SS income to HMRC. Doing both will actually be a pain in the patootie, but the IRS will expect me to file regardless of where I am.  But  I won't be paying to both, as far as I understand things. Right? I mean, I'm not exactly going to be rolling in either dollars or pounds - I'm not going to be piloting my LearJet to my yacht to float off to Monaco for the season (or wherever those people do that sort of thing these days). 

I can't even get my UC pension paid to a non-US bank - it has to be deposited into a US bank and THEN I can transfer it to a UK bank. I'm sure the IRS will know all about my bank accounts. Such as they are...

But wait, the tax years are not simultaneous. US tax year ends Dec 31. But being overseas I can get an automatic 2 month extension on the filing deadline of April 15 from the IRS - that would give me enough time to pay whatever I owe the HMRC before I have to file with IRS so I can report it/deduct the HMRC from my US taxes. Right? The first year is going to be a corker, but I would assume that once I'm there a full calendar year the math will be easier.

The UK tax year ends /start in April?  So I'd be keeping two sets of books, and once a year I would have to figure out how much of each entities' taxes I'd paid and then apply to take it off the other's taxes. I think/hope?

Oy. I hope Turbo Tax can handle this!    I am, sadly, seriously deficient in mathematical skills. Three Uni degrees and I need a spreadsheet to keep my checking account in order. 

And why is it we are one of only two countries on the planet that tax citizens even when they don't live in or have connections to the country? It's not like I can call them if I'm overseas and in trouble and they'll send the Marines to save my backside. In fact, I believe that if they help get you out of somewhere they make you sign a promissory note to pay the airfare back. So.... eh?

It's going to be an interesting decade. 

As you live overseas there should be mandatory US tax withholding on your pension. The question is, in which country do you pay the entire amount of tax and in which do you apply for a foreign tax credit? The country with primary taxation authority is not required to give you credit for tax paid on your pension elsewhere. For something like an IRA you'd simply resource to the UK, pay the full tax on it to HMRC and then claim that as a FTC in the US and also apply any mandatory US withholding tax and probably end up with a big US tax refund. I just wonder if the Government nature of the UC pension is an issue......resourcing a US Government pension just seems a bit weird to me, but thinking about it I think that you should pay the UK first and resource the UC pension by treaty so you can claim the FTC on your US taxes.

If the IRS considers the UC pension as a Government pension paid to a US citizen I just wonder whether it will want primary taxation authority too and how will it view an attempt to resource a US Government pension to the UK so that a FTC can be claimed? Would it be best to pay the US and claim the FTC in the UK?  or is it just another pension and the UK get's the primary the taxation authority because of residence?

I always forget about these unique situations requiring a 1116 "resourced by treaty" basket. The goal always seems, at least to me, to avoid being taxed in one country or the other, the major objective being to avoid paying the inevitable higher UK tax. I can't fault that logic, but for simplicities sake and the avoidance of further communications with either the IRS or HMRC trying to establish why the filing is correct, it always seemed easier to just declare everything to HMRC, pay the tax, and then file a tax credit for the IRS return. I do understand your comment though. Why shouldn't the IRS receive the tax revenue for this type of pension, and why should it then have to issue a credit erasing that revenue. The only comeback I would offer is it works both ways, and HMRC could be in the same boat when it comes to other UK individuals living in the US.

I mean, I'm not exactly going to be rolling in either dollars or pounds - I'm not going to be piloting my LearJet to my yacht to float off to Monaco for the season (or wherever those people do that sort of thing these days). 

I don't understand. You will be a US citizen living abroad, and from everything I read in the US media, you do have a LearJet, you do have a yacht, and you also probably own a property in Monaco. You also live abroad to avoid paying your fair share of US tax. Welcome to the world of the US expat.

The UK tax year ends /start in April?  So I'd be keeping two sets of books, and once a year I would have to figure out how much of each entities' taxes I'd paid and then apply to take it off the other's taxes. I think/hope?

The real reason for this post. While it probably would seem overkill to many on this site, I do keep two sets of books for my own sanity. First is a master where all transactions are recorded as they occur, and then there are two sets of spreadsheets, one for the US and one for the UK, each set out according to the respective tax years. It's the only way I have a chance of accurately keeping track of everything.

And why is it we are one of only two countries on the planet that tax citizens even when they don't live in or have connections to the country? It's not like I can call them if I'm overseas and in trouble and they'll send the Marines to save my backside. In fact, I believe that if they help get you out of somewhere they make you sign a promissory note to pay the airfare back. So.... eh?

Now this really did impress me. You've been doing your research. And, you're correct.

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.

UK University pensions are not Government pensions by UK criteria (see http://www.hmrc.gov.uk/manuals/intmanual/intm343040.htm). Perhaps the same applies for US University pension schemes?  I wonder if the question was resolved through UK-US discussion under Article 26.

I did a bit of Googling, which seemed to indicate that the State of California doesn't currently contribute to the UC scheme - if that's correct, maybe that was a factor in the decision?

Most people paying UK tax on the arising basis would pay the UK tax to HMRC by 31 December and on the US return filed the following calendar year resource the amount of income that is doubly taxed using a treaty-resourced basket Form 1116. 

Taking the view that this kind of pension is a government pension is overly aggressive as HMRC tend not to agree.

Taking the view that this kind of pension is a government pension is overly aggressive as HMRC tend not to agree.

I don't like to disagree with Guya/HMRC, as I'm usually the one proven wrong in my thinking being just an interested amateur, but on the status of UCRS I have to take exception. It is a government pension. The UCRP describes itself as "a tax-qualified governmental defined benefit plan."

http://ucnet.universityofcalifornia.edu/forms/pdf/complete-retirement-benefits-guide-for-employees.pdf

Employees in the University of California Retirement System (UCRS) are eligible for the UCRP (401a DB plan) or a DC 401a plan, the 403b plan (non-profit organizations) and the 457b (deferred compensation plan for Government employees). Because the 457 plan is not restricted to "highly compensated employees" it must be a government plan. This is exactly the same structure I had at the University of Massachusetts and I get an MA state pension and last time I looked MA was a political sub- division of the US and so is CA.

HMRC might not agree that the UCRP is a government pension, but they are incorrect. Still pointing out a powerful organization's error is often seen as aggressive. I do still think HMRC can tax the US pension even if the recipient is not a UK citizen as long as they are "settled" in the UK.

Isn't it just a difference in terminology?  The US and the UK just have different definitions for the term "government pension".

Article 19 is about pensions paid by a government.

The IRS doesn't refer to such pensions as "government pensions", but simply as "Pensions Paid by a [Foreign] Government" (IRS Publication 901).

If the UC pension isn't paid by the State of California, it may be a Government Pension, in US terms, but it isn't covered by Article 19.  Or so it seems to me.
 

Isn't it just a difference in terminology?  The US and the UK just have different definitions for the term "government pension".

Article 19 is about pensions paid by a government.

The IRS doesn't refer to such pensions as "government pensions", but simply as "Pensions Paid by a [Foreign] Government" (IRS Publication 901).

If the UC pension isn't paid by the State of California, it may be a Government Pension, in US terms, but it isn't covered by Article 19.  Or so it seems to me.

UC is the state university of CA, employees are CA state employees, the UCRS is organized under IRS rules allowed for government agencies and describes itself as a governmental plan, the Regents include The Governor of CA and are appointed by the Governor with State Senate approval ......how much more evidence do we need that an UCRP is a government pension.

I get an MA state pension which is a governmental DB pension. If I return to the UK I will tell HMRC that if ever asked, but it won't be relevant because I'm a US/UK dual citizen and will probably be settling in the UK so the saving clause kick in for both the US and the UK and I'll pay UK tax on the MA state pension in the UK and claim a FTC in the US.

UK University pensions are not Government pensions by UK criteria (see http://www.hmrc.gov.uk/manuals/intmanual/intm343040.htm). Perhaps the same applies for US University pension schemes?  I wonder if the question was resolved through UK-US discussion under Article 26.

I did a bit of Googling, which seemed to indicate that the State of California doesn't currently contribute to the UC scheme - if that's correct, maybe that was a factor in the decision?

Oh, yes they most certainly do - the State paying into the pension program. My tax dollars are well at work funding my retirement program. Courtesy of the Treasury of the State of California, funded by us working stiffs.

From somewhere up above - "Still pointing out a powerful organization's error is often seen as aggressive. I do still think HMRC can tax the US pension even if the recipient is not a UK citizen as long as they are "settled" in the UK."

Since immigration considers Irish as "settled" it's kind of a given they're going to ding me on this, right? Interesting that standing up for one's rights (or trying to, if there are any) is considered aggressive. Must be a cultural difference.

AND, pay by Dec 31? I thought the tax year ran April to April? No? So I'd only be paying taxes for money I bring in while I'm there, which if it has to be paid by Dec 31 would be about 7.5 months? And then I would take that off my US taxes.... OR is Dec 31 the due date for the prior year ending in April? That is, for giggles, if we show up there in early April 2016, we won't have been there for 183 days in the tax year ending 2016, so nothing would be payable Dec 2016,but we'd be there for the entire following tax year and would be taxed on that (payable Dec 2017)?

Could I possibly get that lucky?

When I finally do file for the pension, I will have to fill out the withholding paperwork. If it's a sure thing that HMRC will be taxing me, I'll not pay any US taxes on anything after the first year and so I'd file a "take no withholding" out. The first year will have several months of me having worked and having withholding, so I'll still have to file with the IRS to get that back. And after that, it would just be to document what I'm paying to HMRC and claim the credits.

Right?

Oh, yes they most certainly do - the State paying into the pension program. My tax dollars are well at work funding my retirement program. Courtesy of the Treasury of the State of California, funded by us working stiffs.

The crucial thing here is that UC is a State university and it's employees are state employees and the pension is funded by contributions from the employees and the state of CA via UC. Universities like Harvard and Stanford and UK universities are not public institutions with government employees....US state universities are.

From somewhere up above - "Still pointing out a powerful organization's error is often seen as aggressive. I do still think HMRC can tax the US pension even if the recipient is not a UK citizen as long as they are "settled" in the UK."

Since immigration considers Irish as "settled" it's kind of a given they're going to ding me on this, right? Interesting that standing up for one's rights (or trying to, if there are any) is considered aggressive. Must be a cultural difference.

That's just me being cynical

When I finally do file for the pension, I will have to fill out the withholding paperwork. If it's a sure thing that HMRC will be taxing me, I'll not pay any US taxes on anything after the first year and so I'd file a "take no withholding" out.

Yes it would be nice if you could do that. Unfortunately you cannot choose no withholding if you are a US citizen and the payments are made to an overseas address. You should have Federal withholding taken out like you would on US earned income. You receive the pension with US income tax taken off. You then pay UK tax on 90% of the gross amount and use that as a FTC on the US taxes and also apply the US tax withheld. The result is most likely a total refund of the US taxes withheld.

Yes it would be nice if you could do that. Unfortunately you cannot choose no withholding if you are a US citizen and the payments are made to an overseas address. You should have Federal withholding taken out like you would on US earned income. You receive the pension with US income tax taken off. You then pay UK tax on 90% of the gross amount and use that as a FTC on the US taxes and also apply the US tax withheld. The result is most likely a total refund of the US taxes withheld.

Ummm, they won't send it to an overseas address.    They will only send it to a US Bank Account. I did read on the form that I cannot select the no-withholding option of it's going to an overseas address, but since they won't send it to an overseas address I'm not sure why it's even on the form!

http://ucnet.universityofcalifornia.edu/retirees/direct-deposits-to-foreign-banks.html


Ok, so hypothetically again - I show up in the UK in April. I officially retire in June. (I have a LOT of vacation banked up.).

USA is going to want to tax my work income, that I got. However, once I get to the UK the UK clock starts ticking. So anything I pay to the IRS from April forward goes as a deduction on the HMRC forms I file for the year that ends the following April? And by the same token, whatever I end up paying the HMRC by the end of that year gets deducted from my subsequent IRS filing.

I think.
Turbotax does do these, than goodness.

I just need to win the lottery and buy an accountant.