Apart from qualified distributions from Roth IRA accounts, retirement income is generally taxable. But if you move abroad to the U.K., for example, which country taxes that income?
A tax treaty might protect you from double taxation if you expatriate to another country, like the United Kingdom. Instead of the U.S. taxing your retirement income, the U.K. would. That said, you still have to report income from pensions or other retirement accounts to the IRS, even if the U.K. will tax it. Furthermore, you might have to file a Report of Foreign Bank and Financial Accounts, depending on the sum of your retirement plan. Our tax accountants can help you satisfy all IRS reporting requirements for retirement income, whether U.S. or U.K.-sourced, so you do not incur penalties from the agency while living in the United Kingdom.
For help satisfying your reporting requirements, call US Tax Help’s tax CPAs for American expats at (541) 362-9127.
How Will My Retirement Income Be Taxed as a US Expat in the UK?
Suppose you live in the United Kingdom as an American expatriate and get retirement income from a U.S. pension or Social Security. In that case, only the U.K. can tax that income, enabling expats to avoid double taxation. Any qualified distributions from a Roth IRA account should be tax-free, even when Americans expatriate to another country, including the United Kingdom.
While some Americans expatriate after retiring, others move abroad well before that time and earn U.K. pensions or retirement benefits while living there. Since you still have to file taxes with the IRS after living abroad, you must report your U.K. pension on your U.S. tax return. To claim the benefits associated with the U.S.-U.K. tax treaty and avoid double taxation, our tax accountants can file Form 8833 alongside your annual return. Depending on the sum of your foreign pension plan and other foreign financial assets, you might also have to file Form 8938, Statement of Specified Foreign Assets.
The specifics of the U.S.-U.K. tax treaty will determine whether the U.S. or the U.K. taxes retirement income, such as from a 401(k) or pension. Our tax accountants can carefully review your situation to ensure you properly report your retirement income and do not incur unnecessary financial penalties.
Do I Have to Report My Retirement Income to the US Even if the UK Will Tax It?
Even if the U.S.-U.K. tax treaty dictates that the U.K. will tax your retirement income rather than the IRS, you must still report income from pensions or other retirement accounts to the IRS by Tax Day.
If your income as an expat is solely from a pension or other retirement account, whether the plan was from when you lived in the United States or was acquired after moving to the United Kingdom, you must report it to the IRS. Your worldwide income is taxable unless you claim the appropriate exemptions. To avoid double taxation on retirement income, you must also claim the treaty exemption, which our tax CPAs for American expats can do by completing Form 8833 and attaching it to your annual return. If you do not report your retirement income to the U.S. – even if you don’t have to pay American taxes on it – you could incur financial penalties from the IRS.
Tax Day is the filing deadline for all American taxpayers, even those who live abroad. If you need more time to report your retirement income to the U.S. government, the IRS may grant you an automatic two-month filing extension.
Additional US Reporting Requirements for UK Retirement Accounts
Suppose you’ve lived abroad long enough to get a pension or other retirement income from the United Kingdom. That might increase your reporting responsibilities to the IRS if you have retained your American citizenship all this time.
For example, if your foreign retirement account exceeds $10,000, you might have to file a Report of Foreign Bank and Financial Accounts, otherwise known as an FBAR. Informing the IRS of your foreign assets is important, or you could be fined up to $10,000, even for non-willful violations. Penalties for willful violations are much greater, up to $100,000 or 50% of the foreign account or retirement plan, which would be disastrous for expats who rely on those accounts to support themselves.
Help Planning and Preparing US Taxes for Retired Expats in the UK
If you moved to the United Kingdom and have reached or are close to retirement age, your reporting requirements and income might change, further complicating tax filing. Our tax accountants can assist expats in these situations, identifying deductions and other perks that lower their tax liability to the IRS.
If most or all of your income is from a pension or other retirement benefits, we can confirm which country will tax your income according to the U.S.-U.K. tax treaty. Remember, even if the U.S. is not the one to tax your retirement income, you still must keep the IRS updated about it and claim the appropriate exemptions.
We can help expats iron out these matters well before Tax Day so that they do not miss the filing deadline and risk incurring penalties. Suppose you were unaware that you must continue reporting retirement income to the United States after moving abroad. In that case, our tax accountants can help you file back taxes as soon as possible so that you can still claim the exemptions available under the U.S.-U.K. tax treaty regarding pensions and retirement accounts. We can also identify foreign bank accounts or other assets that must be reported to the IRS so that you do not incur any financial penalties for failure to report. You may be able to claim additional exclusions and credits while living abroad as well, and we can confirm your eligibility for such perks while planning and preparing your taxes.
Call US Tax Help Today
Call US Tax Help at (541) 362-9127 for assistance from our tax CPAs for American expats.