collecting a USA pension as a UK resident

bocaboca

I am UK resident but have a small pension in USA from working there 20+ years ago.
I'm trying to understand how this will be treated , for tax purposes, for both UK and USA tax.
I have tried personally researching this but, to me, it is a bureaucratic nightmare.
Has anyone come across anything similar and can recommend professional cost-effective advice?
Thanks, Tony

dunroving

bocaboca wrote: »

I am UK resident but have a small pension in USA from working there 20+ years ago.
I'm trying to understand how this will be treated , for tax purposes, for both UK and USA tax.
I have tried personally researching this but, to me, it is a bureaucratic nightmare.
Has anyone come across anything similar and can recommend professional cost-effective advice?
Thanks, Tony

What is your UK and US citizenship and permanent residence status? The answer depends on this.


Also, have you looked into whether you can get a US Social Security pension?


Based on your description, you do not need professional advice.

bocaboca

Hi,
I am English but lived/worked in the USA on a J1 visa in the early 90's.
I have been UK citizen since.
Good tip about the US Social Security, I hadn't considered that.. I'll follow up.
Thanks, Tony

dunroving

bocaboca wrote: »

Hi,
I am English but lived/worked in the USA on a J1 visa in the early 90's.
I have been UK citizen since.
Good tip about the US Social Security, I hadn't considered that.. I'll follow up.
Thanks, Tony

Re: Your US retirement funds, you can start drawing on these from age 59.5, or if you draw earlier than 59.5, there will be a 10% penalty (so if you draw $10,000, $1,000 will be deducted as an early withdrawal penalty).


If you are a non-US citizen, non-US permanent resident, you normally do not pay US taxes on income from your US employer pension scheme/retirement fund (what do you have - a 401k, or 401a? Or an IRA?). You will need to file a W-8BEN form with the retirement company (TIAA-CREF, maybe? Vanguard?) to claim exemption from US taxes under the UK-US dual taxation agreement. The good news is that although this income will be subject to UK taxes (via self-assessment), 10% of it is exempt from UK taxes (i.e., you'll only pay UK taxes on 90% of whatever you withdraw). This is all covered by the dual taxation agreement.


Re: US Social Security, you normally need to have a minimum of 40 credits (essentially 10 years) of contributions to qualify for a pension. However, my understanding is that using the US-UK totalization agreement (social security agreement), you can use contributions to the UK "social security" (NI contributions) to meet the minimum requirement.


This doesn't mean that if you have 3 years in US SS and 30 years in UK NI, you can use the 30 years to "bump" your US SS record to 33 years. It means that whereas you'd normally simply not qualify for a US pension at all, you can qualify to get one, but it would be based on 3 years' contributions (which is better than zero). This will also be reduced by the Windfall Elimination provision, or WEP (Google it) if you are receiving any UK pensions, but there is a maximum reduction, so again, you should still get something.


Depending on your age, the standard age for receiving US "state pension" (SS-based) is about 66, but you can apply to receive it as early as 62, at a lower rate.


I worked in the US for over 10 years and will be drawing US SS pension and also drawing from my university 401a. My plan is actually to repatriate most of it to the UK. You can't transfer a US pension fund directly into a UK pension fund. My plan is to take regular withdrawals and pay into a SIPP. So I will pay tax on receipt of it but get tax relief on paying into a SIPP. This all has to fall under the annual allowance limits, etc., and I will put some of it into ISAs.


Hope that helps! It can seem very complicated, and I have had battles with TIAA-CREF, but the basic principles are not too complex.

atush

it is worth looking into, I am pretty sure the US pension is more generous than the UK one.

I have just 11 years and will be getting $377 or more per month.

dunroving

atush wrote: »

it is worth looking into, I am pretty sure the US pension is more generous than the UK one.

I have just 11 years and will be getting $377 or more per month.

That's what we get for living in a socialist country.

atush

I'll get medicare too I think when I am home. Not really sure.

TBH. i think having free healthcare is worth more. IE the NHS even with all the failings.

JezR

atush wrote: »

it is worth looking into, I am pretty sure the US pension is more generous than the UK one.

I have just 11 years and will be getting $377 or more per month.

Ten years contributions is sufficient to qualify in full.

atush

Dont think so, I got an estimate.

And I think it was over 40 years to get the max, can't remember? The full whack is like 4x that.

kangoora

I went through this on an ex-pats board, got a decent response which basically backs up dunroving

http://britishexpats.com/forum/usa-57/uk-state-pension-usa-social-security-733297/page32/#post11521611

dunroving

JezR wrote: »

Ten years contributions is sufficient to qualify in full.

No, 10 years* is the minimum to qualify to receive anything, all other things being equal. See my post about the OP using the Totalization Agreement if he doesn't meet this minimum requirement.


40 years is the minimum to avoid being WEP'ed.


Anywhere in between 10 years and 40 years and the WEP effect varies.


*It's actually 40 credits, but because credits used to be earned per quarter (in fact I think it used to be termed quarters, not credits), for most people it equates to 10 years of contributions.