Taxation of pension from the UK

[rdo cpa]

A US resident is a retired UK air force officer who receives a pension from the UK air force. He files a UK tax return and pays tax (minimal because of adjustments and credits) on the pension income.

Is he required to include the UK pension income on his US return? In trying to read the US/UK treaty, one section seems to say that it should only be taxed in 1 country.

If he has to include the pension income on both the US and UK returns, I assume he would get the foreign tax credit on the US return.

[Matt Sova]

Yes

As a US Taxpayer you pay tax on 100% of your worldwide income. Then you take an FTC for the tax paid to foreign countries. I have a client that has a UK pension and we take the entire pension, convert it from Pounds Sterling to US Dollars and include it on the return.

[FEDUKE404]

Question

Please enlighten:

So the UK can tax a person receiving pension income when that person is a non-resident of the UK / full-time resident of the US?? (I'm obviously making a poor comparison between a "prior" state in the US not being allowed to tax its retirement income when the recipient is a full-time resident of another state.) Is this payment in lieu of an extended visit to The Tower of London?

After all the British dust has settled, what kind of UK tax does a person normally have on, let's say, a $25k (USD) pension?

Obviously the person living in the US and filing a tax return is subject to taxation on "world-wide" income.

But getting the numbers going onto the Form 1116 sounds like it might be a challenge! (And does not the UK tax year start in April and end in March?)

FE

[Kram BergGold]

Treaty

To me the responders are missing the point. Before getting involved with world wide income and FTC you have to look at the treaty. If the treaty says you only pay tax on it in one country and you know he is paying UK tax then you don't report it in US. So the real question is, is the poster reading the treatry correctly. This is the type of question I usually pay for at NATP research.