With many US citizens resident in the UK and building up sizable pension pots they may be looking to take their “tax free cash”, however what do the authorities over the pond feel about this?
We had an enquiry recently asking about whether the Pension Commencement Lump Sum (or Tax Free Lump Sum) is still tax free for American citizens.
Having reviewed the double tax treaty it seemed that primary taxing rights for pensions remain with the state in which the citizen is resident.
Unfortunately having delved deeper it appears that the US does not recognise this as a pension payment under the treaty and as such is not considered to be tax free. As such, the entire tax free lump sum is taxable in the US.
However, all is not lost and working with our US specialist we were able to significantly mitigate the liability for the client effectively making the lump sum tax free after all and saving the client over £25,000.
If you want to find out more, get in touch today.