Find out how to access your pension from the USA and the states that have no personal income tax.
Eyeing up a retirement to the USA? Perhaps you’re seeking the sun-soaked shores of Florida, the smoothie-sipping culture of California or the rural beauty of Pennsylvania.
As important as it is to choose somewhere to buy that suits your heart and the lifestyle you are after, there are practical things to consider too. Such as tax. And if you’re planning on packing up and crossing the pond with a pension to support you, there’s a high chance you don’t want all your money gobbled up by the taxman.
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Can you claim your pension in the USA?
Yes, you can claim your UK pension from your new home in the USA. However, if you are splitting your time between the UK and the USA, you may not want your pension to be paid directly into a US bank account. It might work better for your money to come into your UK account.
Managing your money across currencies
Your pension, property purchase and other funds will need transferring from pounds to dollars.
The trouble is that currency rates fluctuate all the time, affecting the amount that you have to transfer, and making budgeting difficult. To avoid this happening, chat to Smart Currency Exchange. They can organise a forward contract for you, which enables you to fix an exchange rate for up to 24 months. So, elections can occur (and 2024 is a busy year for it), interest rates can rise, job markets can change and the amount that you are transferring across the Atlantic remains the same.
UK state pension
In the UK, you can be a tax resident even if you do not live here full time. You are a UK tax resident if you spend more than 183 days a year here.
If you’re moving full time, then you’ll need to inform HMRC that you’re moving and update them with your new address.
In the UK, residents can take out up to a quarter of their pension free of tax, while the remaining three-quarters is taxed as income. However, this benefit from the UK doesn’t extend to the US – if you take a lump-sum amount, it will be subject to regular income tax in the US.
Private pension
Your pension provider should be able to offer insight on how to send your pension to a US account. This route can expose you to currency risk, so it’s best to contact Smart Currency Exchange.
The UK and the US have a double taxation agreement, so you won’t be taxed on the same income twice.
Seek professional advice
If you’re recognised as a US taxpayer, you’re required to declare your global income on your US tax return. This includes any income you receive from a UK pension. The tax agreement between the United States and the United Kingdom is comprehensive and provides detailed guidance on the taxation of pension plans.
To navigate this, it’s best to seek out the advice of an independent international tax advisor who can help navigate your specific circumstances.
9 states with no personal income tax
Generally, a UK pension would be counted as personal income for tax purposes in the USA. Currently, there are nine states in the US that have no income tax.
Expat favourite, Florida.
Florida: In 2023, foreign buyers spent $5.1 billion on South Florida property alone. Its promise of reliable sunshine, relaxed seaside days, golfing galore and incredibly robust tourism industry makes it a favourite among overseas buyers. Its best for retirees who fancy being on a holiday that never ends.
Alaska: Its breathtaking landscapes, abundant wildlife, and the promise of adventure make it a top choice among those seeking an escape from the ordinary. It’ll suit those with a love for the great outdoors and don’t mind a bit of cold.
Nevada: Its vibrant nightlife, world-class casinos, and entertainment shows make Nevada a hotspot for thrill-seekers. Fancy hustle, bustle and even a little risk taking?
New Hampshire: Its beautiful fall foliage, hiking trails, and ski resorts make New Hampshire ideal for nature lovers and those looking for a calm day-to-day.
South Dakota: Its iconic Mount Rushmore, historic Deadwood, and the scenic Badlands make South Dakota a favourite among history buffs and adventurers.
Tennessee: Its vibrant music scene, delicious southern cuisine, and rich history make Tennessee a favourite among music lovers and foodies.
Texas: From Big Bend National Park to Piney Woods, there’s a wealth of diverse landscapes and opportunity for hikers and cyclists. Undoubtedly, it’s the place to be for barbeque fans.
Washington: The vibrant capital is great for those that are easily bored. It offers a high quality of life and superb healthcare, but both can be expensive. Plus, there’s plenty of history, arts, culture and restaurants to keep you busy too.
Wyoming: Its stunning natural beauty, abundant wildlife, and outdoor recreational activities make Wyoming ideal for nature lovers.
In Illinois, Iowa, Mississippi and Pennsylvania retirement income is exempt from income tax too.
Sources:
Tax on foreign income: UK residence and tax – GOV.UK (www.gov.uk), Tax if you leave the UK to live abroad – GOV.UK (www.gov.uk), USA: tax treaties – GOV.UK (www.gov.uk), Foreign Buyers Acquired $5B in South Florida Homes in 2023 (therealdeal.com), These 13 states don’t tax retirement income (usatoday.com)
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