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Posted Thu, 09 Feb 2023 09:57:31 GMT by Simon Marks
I'm considering cashing-in a personal pension plan that I have in the UK...established decades ago. I have been a non-resident, living in the US for more than 25 years. I pay tax on my income in the US, and am trying to establish whether it is possible to seek relief from taxation at source via form DT US Individual 2002 ( Am I correct that once this form is signed and sealed by both HMRC in the UK and the IRS in the United States, it can then be provided to the private pension company and act, effectively, as an instruction to them not to use the emergency tax rate that would otherwise be applied to 75% of my pension payout? I know the first 25% is paid out tax-free, but am trying to avoid use of the emergency tax rate which will then require me to claw the money back from HMRC, when I will be paying tax on it in the US to the IRS as part of my worldwide income. I'm unclear as to whether Form DT US Individual 2002 can be completed BEFORE the pension payout has begun? Thanks for any assistance and advice.
Posted Tue, 14 Feb 2023 15:46:32 GMT by HMRC Admin 17

Article 17(1) of the UK / USA double taxation agreement, advises that pensions and other similar renumberations, are only taxable in the USA. 

If you receive your private pension in regular payments, e.g. monthly, then your non goverment pension is not taxable in the UK and
the DT individual form at :

Double Taxation: Treaty Relief (Form DT-Individual      )

should be completed and sent to the IRS in the first instance.

 The IRS will validate the form and send it to HMRC to process. 

However, article 17(2) of the UK / USA double taxation agreement, advises that if "a lump-sum payment derived from a pension
scheme established in a Contracting State and beneficially owned by a resident of the other Contracting
State shall be taxable only in the first-mentioned State". 

In this case the contracting state and first mentioned state is the UK :


 Please note you cannot submit form DT indvidual to the IRS before your pension commences payment. 

Any tax deducted will be refunded, if appropriate .

Thank you.
Posted Tue, 14 Feb 2023 15:59:09 GMT by Simon Marks
Thanks for this. So if a lump sum is taken, what tax rate applies on the 75% of value if it's paid to a non-resident with an NT tax code?
Posted Thu, 16 Feb 2023 14:51:33 GMT by HMRC Admin 10
If you are entitled to receive a personal allowance, this would be deducted first.  
Of the remainder, the lowest rate of tax would be applied first (20%), followed by the higher rate (40%) and lastly the additional rate (45%). depending on the amount of taxable lump sum.  
More information in icome tax rates and personal allowances can be found at:
Income Tax rates and Personal Allowances
Posted Thu, 16 Feb 2023 15:10:07 GMT by Simon Marks
Thanks so much. One final question, if I those bands (20% 40% and 45%) kick-in AFTER 25% is tax-free AND - if applicable - the deduction of the personal allowance? In other words if my income in the UK is zero, do I receive: 25% of the total lump sum tax free Then GBP 12,570 tax free Then the 20 / 40 / 45% bands? Or is the initial 25% tax free lump sum considered income and counts towards the 12,570 personal allowance? Thanks again for all the help.
Posted Thu, 23 Feb 2023 12:22:21 GMT by HMRC Admin 32

Yes, the bands kick in after the tax free amount and personal allowances. Please note though that if a US resident, no personal allowances are due.

Thank you.
Posted Thu, 23 Feb 2023 14:19:16 GMT by Simon Marks
Thanks very much.

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