Hi, all.
I have searched through this board and much of the Web and have been unable to find a definitive and yet concise source of information for how UK workplace pensions are treated for US tax purposes (i.e., for US citizens). Does anyone know of a useful guide?
Assuming not, below are topics/questions/information tidbits that I've come up with. Will this possibly help toward creating a "sticky" here for others to use? I think it would be most helpful if, in contributing to the below, we try to clearly label what is fact and what is just the consensus view among tax experts, as much of this stuff is a grey area.
DEFINED CONTRIBUTION FBAR. It seems that the broad consensus is that a workplace pension must be reported here, correct? (Or, stated otherwise, it is simply not worth the risk to not report the pension on the FBAR?)
8938. Same as above -- most experts agree that a workplace pension needs to be included here, as well, once one exceeds the reporting threshold, of course. Agreed?
PFIC and Foreign Trust Reporting. “Because the U.S.-U.K. double taxation treaty recognizes U.K. retirement plans as ‘qualified’ in U.S. tax terms, the more complicated Passive Foreign Investment Company and Foreign Trust reporting rules do not apply.” Do you agree with this expert’s statement regarding pensions and both PFIC and foreign trust reporting? In other words, PFICs do not have to be reported if housed within a pension? Separate, but related, question: if one chooses
not to invoke the treaty, does this mean that he/she then needs to report PFICs in a pension, on top of declaring it as a foreign trust, or is that irrelevant?
Contributions. Here is where things get confusing for me, particularly around claiming tax treaty relief. Some advisors say it is not necessary to do this, saying that “depending on personal circumstances, it may be better long-term US tax planning to forego a claim for this particular relief when any US tax that could be ‘saved’ is in any case able to be offset by foreign tax credits.”
- Is anyone able to say what the positives and negatives are to invoking the tax treaty, particularly when it comes to contributions? From what I see online, if one does not invoke the treaty, one would then try to treat all the contributions (both employer and self-funded) as taxable income and then attempt to use excess tax credits to cover the US tax liability, with the advantage then being that distributions, at retirement, will be tax free in the United States?
- Is it correct that one can decide year to year (i.e., depending on income and pension contributions), whether it makes sense to invoke the treaty or not for that year?
- If more than 50% of the total pension contribution comes from the individual (i.e., not the employer), is this a significant issue?
- Is it correct that the total maximum contribution to a UK pension, including both employer and personal funds, cannot exceed $53,000 (as of 2016)?
DEFINED BENEFITFBAR. Not necessary, as there is no stated/known value --
according to two people here, but they may be incorrect.
8938. Required, assuming one meets the minimum reporting thresholds for this form.
PFIC and Foreign Trust Reporting. TBD.
Contributions. TBD.
