Tax on Pensions / Tax Treaty

Hi again...

I am a UK citizen, but I lived in the USA for some time (with a green card, which I no longer have, I am now a non resident alien) and have money in an IRA in the USA. My wife is a USA citizen and also has money in an IRA in the USA.

We are currently resident in the UK. Assuming we remain here when we retire this is what I understand about taxation of pensions. Is this understanding correct.

If I take regular withdrawals from my IRA then it won't be taxable in the USA, but would be taxable in the UK (as normal income...so would be added to any UK pension income and normal income tax rates applied)? My UK income is of course not relevant for US taxation.

For my wife, likewise regular withdrawals from her IRA won't be taxable in the USA, but would be taxable in the UK (added to any UK pension). But any UK pension income would be subject to US tax (but likely no US tax would actually be payable due to credit for UK tax paid....UK taxes being generally higher than US)?

Assuming this correct - what counts as "regular withdrawals"? And how are other withdrawals treated?

Thanks
Matt

The bits I think I can answer are as follows.

Like me your wife is a USC living in England. The US will tax all her worldwide income with the exception of her US SS and her UK equivalent, OAP, both of which are taxed only in the UK as per the treaty. Her IRA withdrawals will be taxed in both countries but she will be able to claim back the UK tax paid as foreign tax credits when she files her US taxes.

Thanks---

I think I had missed some of the detail of the treaty....

After reading a bit more my understanding of the treaty is:
 a) regular retirement income [US IRA, SS & UK OAP, PP] is taxable only in state of residence (i.e. UK)
 b) for US citizens there is a "savings clause" which means in fact worldwide income is taxable anyway
 c) the treaty specifically excludes SS & OAP from the savings clause

So for a US citizen:
- SS & OAP would be taxable in UK
- IRA & PP would be taxable in UK and USA (but US tax could be reduced by foreign tax credit)

So a non-resident alien:
- SS, OAP, IRA and PP would be taxable only in UK

[where I use IRA - I mean a "regular withdrawal". By PP I mean generically a personal pension from employer or private...i.e. anything except OAP]

Is this right?

Thanks
Matt

 

Thanks---

I think I had missed some of the detail of the treaty....

After reading a bit more my understanding of the treaty is:
 a) regular retirement income [US IRA, SS & UK OAP, PP] is taxable only in state of residence (i.e. UK)
 b) for US citizens there is a "savings clause" which means in fact worldwide income is taxable anyway
 c) the treaty specifically excludes SS & OAP from the savings clause

So for a US citizen:
- SS & OAP would be taxable in UK
- IRA & PP would be taxable in UK and USA (but US tax could be reduced by foreign tax credit)

So a non-resident alien:
- SS, OAP, IRA and PP would be taxable only in UK

[where I use IRA - I mean a "regular withdrawal". By PP I mean generically a personal pension from employer or private...i.e. anything except OAP]

Is this right?

Thanks
Matt

I can only speak from my own experience as a USC living in the UK,  and having my tax returns prepared by a dual qualified  tax accountant. I include a link below with a technical explanation of the treaty, useful to read regarding pensions.

I have a US private pension reported on a 1099-R and 2 UK private pensions. I will start receiving my OAP next year. The UK is the primary taxing authority and taxes all 3 pensions, it will also tax my OAP. The US also taxes all 3 private pensions.

My US pp has mandatory withholding which I have as low as I can with the filing of a W4 some years back.  When filing my US taxes I use forms 1116 to claim foreign tax credits for the taxes paid on those pensions. For the US pension the box “Resourced by Treaty” on form 1116 is checked which indicates that although this is US source income it is treated as foreign income for the purposes of foreign tax credits.

I have done a Roth conversion each year since retiring, the last 2 being while resident in the UK and those lump sum conversions were taxed only by the USA. Roth growth and withdrawals are tax free in both countries.

When I start receiving my OAP it will not even be listed on my US return. When I start receiving my SS that will only be taxed in the UK. I understand from other USC folks resident in the UK that their US government pensions are only taxed in the UK.

https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf

Thanks again .... I think this is consistent with my understanding.