For Americans who have retired to the UK or are planning to, understanding how US Social Security benefits are taxed is an essential part of financial planning. The tax treatment of Social Security payments can be complex, especially when foreign residency and tax treaties come into play. Here, we break down how US Social Security is taxed for American citizens living in the United Kingdom, with reference to the US-UK income tax treaty.
General US Tax Rules on Social Security
US citizens are generally taxed on their worldwide income, including Social Security benefits, regardless of where they live. However, certain provisions may apply to reduce or eliminate double taxation when living abroad, especially in treaty countries like the UK.
Under US domestic law:
Up to 85% of your Social Security benefits may be taxable, depending on your combined income (including other pensions, dividends, and interest). You are still required to file a US tax return each year, even if you live overseas
UK Tax Treatment of US Social Security
Under normal UK tax rules, foreign pensions and Social Security income are generally taxable. However, thanks to the US-UK income tax treaty, there is an exception for US Social Security payments.
The US-UK Tax Treaty and Social Security
Article 17(2) of the US-UK income tax treaty provides that only the United States may tax US Social Security payments made to residents of the UK. In other words, the UK agrees to exempt these payments from UK income tax. This is a significant benefit for Americans receiving Social Security while living in the UK.
According to the treaty:
“Social Security payments and other public pensions paid by one Contracting State to an individual who is a resident of the other Contracting State shall be taxable only in the first-mentioned State.”
So, as long as the income is classified as US Social Security, the UK does not impose any tax.
Do You Still Need to Report It?
Yes. Even though the UK does not tax US Social Security, you are still required to:
Report the income on your UK tax return (typically as foreign income), but you can claim full exemption under the treaty. Report it on your US tax return as usual, where it may be subject to US tax depending on your total income.
Potential pitfalls
Misclassification: Make sure your income is correctly identified as US Social Security. Other types of pensions may not qualify for treaty protection. Currency Conversion: Convert amounts received in dollars to pounds accurately using HMRC’s approved exchange rates. UK Self-Assessment: Even though the UK won’t tax your Social Security, you might still be required to submit a self-assessment return depending on your overall income and circumstances.
Final Thoughts
For Americans living in the UK, US Social Security payments remain taxable in the United States but are protected from UK taxation under the treaty. Proper reporting and awareness of treaty benefits can help you avoid unnecessary tax and stay compliant in both countries.
The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.
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