Tax Teaser

[TANNER]

I am aware that when you become a Permanent Resident in the USA you become liable to tax on your worldwide income.My question is what is the status of income earned inthe UK which is specifically tax free in that country ie Pension Lump Sum or proceeds of one of the tax exempt saving schemes like ISAs.Are they regarded differently in the USA and as such liable to tax?My accountant tells me this is the case which is a bit of a shock!

[haytonmac]

Anneke is out on the school run at present, but will be able to give you a more complete answer as she looks after all of this type of thing in our family. If I have got it right, if you are taxed in the UK, you cannot be taxed on the same amount in the US. You only get screwed once (for a change)

Craig

[Sharon]

Hi Tanner

I think your account is right

Whilst tax free in the UK techincally you should declare in the USA as income. Not sure if your lump sum is free of tax and monthly pension taxable or whether the whole amount is taxable

What exactly did your accountant say?

[mark]

Hi

Florida Peter may be able to throw some light on this subject



I think Trev's wife is an accountant in the USA, mabe send him a pm?

[TANNER]

I am seeing accountant tomorrow but from our phone discussion it seems he believes it is all taxable income for US purposes notwithstanding the basis of the investment in the UK.
It seems to me to be unfair to have looked forward to a tax free payment for many years to have it taken from you at the 11th hour.Another part of the price of living in the sunshine.Hey-Ho!

Thanks for the replies so far.I expect this is a matter that will affect most Ex Pats at some time so it would be good to get some definitive answers.

[Susie]

Hi Tanner

Am getting widows benefit for one year only and a pittance, Hope I do not have to pay tax on it!

Also got $255 death benefit from the US

[floridapete]

I don't really known about the US tax implications of tax-free UK income under the worldwidse income ruling for legal permanent residents. However, it does make sense that they could tax the UK pension - and the dual taxation treaty would not work in this case as there has been NO tax taken by the UK against which you could charge a credit against any US liability.

But just to throw another spanner into the Green Card works - be aware that any UK property you may own in the Uk after entering the first time on your fresh new Green Card will be TAXED at sale by Uncle Sam. Although the UK inland rev. may allow you the sale of a primary residence tax free - the US does not and they will claim capital gains tax on the sale of any property (primary or secondary) in the Uk (or worldwide) AFTER you have entered as a Green Card holder !

So, if you have any plans to get a green card - make sure that you have sold all your UK (worldwide) assets BEFORE you leave the UK. Or Uncle Sam will want a piece of it all !

Tough huh ?

[TANNER]

Thanks for that Peter.My US accountant is liasing with my UK advisor and I will report on their conclusions for the benefit of anyone in the same situation.
Lucky I sold my UK property when still an E2er several years ago. From what you claim this could have been another problem.

[Susie]

Hi

At the seminar the CPA said

If you reside in the USA for 183 days per year you are taxed on your worldwide income

So the question I put to him was

#If someone received a tax free lump sump from a pension in the UK# is this income, for tax purposes ?

The same with my widows pension.

In the UK it is a tax free benefit, but is it classed as income in USA?

Old age pension

I am wondering what happens when we get our old age state pension

The UK will tax it (I guess at first) then maybe get credit in the USA for this tax?

Did not really get the answer to my questions.

In other words;

We can get tax free benefits for lump sum on pension and widows benefit (not old age pension)

So in the UK benefit I still need to know

?? In the USA tax free benefit or income???

[haytonmac]

folks who ever gave craigs message the thumbs down ......there is the double taxation treaty between the uk and the usa on worldwide income ,yes as understand it just because it is tax free in the uk it wont be here but your rate of tax here is less than the uk ! i would suggest that anyone with tax issues should get hold of a cpa that is trained in uk tax affairs as well as usa .if anyone wants this info i have the name someone here in kissimmee .trust this will be helpfull !

[mark]

I don't really known about the US tax implications of tax-free UK income under the worldwidse income ruling for legal permanent residents. However, it does make sense that they could tax the UK pension - and the dual taxation treaty would not work in this case as there has been NO tax taken by the UK against which you could charge a credit against any US liability.

But just to throw another spanner into the Green Card works - be aware that any UK property you may own in the Uk after entering the first time on your fresh new Green Card will be TAXED at sale by Uncle Sam. Although the UK inland rev. may allow you the sale of a primary residence tax free - the US does not and they will claim capital gains tax on the sale of any property (primary or secondary) in the Uk (or worldwide) AFTER you have entered as a Green Card holder !

So, if you have any plans to get a green card - make sure that you have sold all your UK (worldwide) assets BEFORE you leave the UK. Or Uncle Sam will want a piece of it all !

Tough huh ?

Hi Peter

Yes very tough,

I was under the impression that I had three years to sell my UK property before any CGT would be due.

This is a mind field, and trying to do research as to what to do

The problem is the USA CPA's normally do not know much (if anything) about UK taxation and the UK chartered accounts know little aoubt USA taxation
and why I am going round in circles trying to understand

[floridapete]

Yes, Mark, that's certainly the catch 22 situation !

There are simply not enough CPA/Charetered Accountants around who know enough about both aspects of US/UK taxes.

My (limited) knowledge is that the UK gives you 3 years to dispose of a primary residence in the Uk once you have become a tax expat. After that it will be taxed as a secondary residence/investment property sale BY THE UK.

But the US don't give you (as a LPR) that period of grace in selling a UK property within your worldwide income once you have entered on your Green Card status. They will tax it as CGT from day one ! No personal allowances either !!

"Welcome to America - the land of the free - the land of opportunity !"

[InnVic]

Yes, Mark, that's certainly the catch 22 situation !

There are simply not enough CPA/Charetered Accountants around who know enough about both aspects of US/UK taxes.

My (limited) knowledge is that the UK gives you 3 years to dispose of a primary residence in the Uk once you have become a tax expat. After that it will be taxed as a secondary residence/investment property sale BY THE UK.

But the US don't give you (as a LPR) that period of grace in selling a UK property within your worldwide income once you have entered on your Green Card status. They will tax it as CGT from day one ! No personal allowances either !!

"Welcome to America - the land of the free - the land of opportunity !"



At last....an advantage to be on E2! :-)

[Susie]

Hi

I wonder what would happen if I became a USC, then returned to live in my UK residence for 2 years

Just a thought.

I too am doing research as to my options to minimise tax liability. I know this is my own fault and should have sought tax planning beofre but every time I have sought advise I just get myself in a bigger muddle and why sometimes it is easier to do nothing ! and yet I know that is the wrong ting to do also

Damed if I do and damed if I don't

My own UK account is in the second group of top ten accountants in the UK even they do not seem to be able to give me a clear picture

[Ron]

Hi Sue

Better still, get a whacking great big kingsize mattress and stuff it full of dosh!