UK spouse Social Security spousal coverage

[F4mandolin]

We need to make a decision pretty soon on whether to have my wife pick up her US citizenship (she is UK). She will have been here in the US 3 years in June, so we would start the paperwork at that point. We are likely to be moving back to the UK at some point in the next few years. The only advantage (that I can see) for her to pick up her citizenship is that it would hopefully guarantee her a spousal SS coverage of my SS. She evidently gets it now whether she is a US citizen or not. There is no way to know the future of course, but I was wondering if anybody was following/researching SS closely enough that they thought there might at some point be a change in policy in this to restrict SS to only US citizens. I could see at some point if whoever was in power had to make some tough decisions on reducing expenditures that this benefit could go away.

 

[haha]

We need to make a decision pretty soon on whether to have my wife pick up her US citizenship (she is UK). She will have been here in the US 3 years in June, so we would start the paperwork at that point. We are likely to be moving back to the UK at some point in the next few years. The only advantage (that I can see) for her to pick up her citizenship is that it would hopefully guarantee her a spousal SS coverage of my SS. She evidently gets it now whether she is a US citizen or not. There is no way to know the future of course, but I was wondering if anybody was following/researching SS closely enough that they thought there might at some point be a change in policy in this to restrict SS to only US citizens. I could see at some point if whoever was in power had to make some tough decisions on reducing expenditures that this benefit could go away.

Who knows, but I think that is extremely unlikely. US government makes a lot of what appear to me to be extremely questionable decisions, but in a world getting more international every year this would be right up with the all time dumb moves.

And it has become more and more clear that there are real disadvantages to US citizenship for solvent to affluent people.

Ha

 

[Alan]

Who knows, but I think that is extremely unlikely. US government makes a lot of what appear to me to be extremely questionable decisions, but in a world getting more international every year this would be right up with the all time dumb moves.

And it has become more and more clear that there are real disadvantages to US citizenship for solvent to affluent people.

Ha

+1

Even for low income people it is a big hassle.

Imagine the future with F4 gone and his DW living on her survivor SS plus dividends / interest in the UK. She is extremely unlikely to be owing any US taxes, but as a US citizen she is going to have to file US taxes and probably FBAR forms to the Treasury. If F4 is the one who has been handling all this then she will likely need to pay for a tax pro knowledgeable in US/UK taxes and the treaty between the countries.

Also, with his DW as a UK citizen living in the UK F4 will be able to file US taxes as MFS, and he can move some of his income into his wife's name to maximize all the UK tax allowances. If concern over this possible change in law is the only reason to apply for US citizenship then I wouldn't bother.

 

[F4mandolin]

Hmmm, this is fitting in with my thinking at this time. If we were staying here for an extended period of time there are some legal issues that point towards getting citizenship. If we moved back in 2 years time (or 3 or 4), my wife would still only be 56 and would only get a small pension at 60.....with another coming at 67 that would bump her up towards the tax free limit over there. I could move pretty well all of our Vanguard money over to her name only......although I am not sure how to do that to minimize tax effects. My TSP money would likely stay where it is.....or is there a way to move that over to Vanguard as well? Somebody....somewhere....sometime is going to get that tax money as well. Aaaarg.....my head hurts.

 

[Alan]

Hmmm, this is fitting in with my thinking at this time. If we were staying here for an extended period of time there are some legal issues that point towards getting citizenship. If we moved back in 2 years time (or 3 or 4), my wife would still only be 56 and would only get a small pension at 60.....with another coming at 67 that would bump her up towards the tax free limit over there. I could move pretty well all of our Vanguard money over to her name only......although I am not sure how to do that to minimize tax effects. My TSP money would likely stay where it is.....or is there a way to move that over to Vanguard as well? Somebody....somewhere....sometime is going to get that tax money as well. Aaaarg.....my head hurts.

FWIW, we are also planning to move back to the UK. Moving our after tax Vanguard savings into her account was easy, a bit of paperwork and no tax hit at all. As far as US taxes are concerned there is no difference as we file MFJ. However, once in the UK we have to file as individuals, there is no married anything as far as UK taxes is concerned so it is much better tax wise to each have income coming in to maximize the tax free allowances. (e.g. between us we'll have ~$34k UK tax free CG's)

As far as IRA's are concerned I'm simply doing ROTH conversions each year since ROTH withdrawals are tax free in both countries, and at present, RMD's would push me into the 40% bracket in the UK so paying US tax at 25% ahead of time is worth it in my situation.

We are both US citizens so will be filing US taxes as well.

PS
At the end of the day the VERY best we can achieve is to continue paying the same amount of total taxes as we do now, the tax treaty simply allows one to apply foreign tax credits against US taxes.

 

[F4mandolin]

Would it make ANY sense for me to drop my US citizenship after 5 years living in the UK and going for citizenship there? Connections here in the US are minimal. I guess I could move my TSP money over to Vanguard and then what?......pay US taxes still on money I drew out? Not sure how that would work.

 

[Alan]

Would it make ANY sense for me to drop my US citizenship after 5 years living in the UK and going for citizenship there? Connections here in the US are minimal. I guess I could move my TSP money over to Vanguard and then what?......pay US taxes still on money I drew out? Not sure how that would work.

You can't give up your citizenship and become stateless, so you would have to be a UK citizen before renouncing your US citizenship. Other than the hassle of filing US tax returns and completing FBARs, I don't see what it would gain you as you are going to have to pay taxes on any tax advantaged accounts you have, whether those are UK or US taxes. By that time you will know how much hassle that is and can re-visit your citizenship options.

You would have to check with your TSP provider to see that they will deal with a customer who does not have a US address before leaving the US permanently. I know that, provided you already have a Vanguard account, they do service the accounts of non-residents, but I have no idea of any other financial institutions.

 

[F4mandolin]

Thanks Alan....yeah, I already knew I would need the UK citizenship first. Not something I am too worried about.....at the time we can worry about it. Wife is heading back for a two week visit in 10 days. By the time she freezes to death in houses that are barely heated (amazing how her son's attitude towards heating has changed since they had to start paying the bills).....she may insist we stay here.

 

[Alan]

Thanks Alan....yeah, I already knew I would need the UK citizenship first. Not something I am too worried about.....at the time we can worry about it. Wife is heading back for a two week visit in 10 days. By the time she freezes to death in houses that are barely heated (amazing how her son's attitude towards heating has changed since they had to start paying the bills).....she may insist we stay here.

The weather does take some getting used it once you've experienced better.

 

[sailor]

F4,
Another benefit of your wife having US citizenship (vs. just Green Card) is unlimited deduction in Federal estate taxes for the surviving spouse.
Right now exemption is set @ 5 million level, so it might be not applicable, but the law have been repealed in the past and the exemptions levels varied through the years.
Have a look at Wikipedia: Estate tax in the United States - Wikipedia, the free encyclopedia

 

[Alan]

F4,
Another benefit of your wife having US citizenship (vs. just Green Card) is unlimited deduction in Federal estate taxes for the surviving spouse.
Right now exemption is set @ 5 million level, so it might be not applicable, but the law have been repealed in the past and the exemptions levels varied through the years.
Have a look at Wikipedia: Estate tax in the United States - Wikipedia, the free encyclopedia

If, by the time F4 passes on, he is a nonresident in the USA, with no property in the USA that should not be an issue. You'd also need to check the tax treaty for the treatment of Estate tax.

Some Nonresidents with U.S. Assets Must File Estate Tax Returns

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.
Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.
Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.

 

[FIREd]

F4,
Another benefit of your wife having US citizenship (vs. just Green Card) is unlimited deduction in Federal estate taxes for the surviving spouse.
Right now exemption is set @ 5 million level, so it might be not applicable, but the law have been repealed in the past and the exemptions levels varied through the years.
Have a look at Wikipedia: Estate tax in the United States - Wikipedia, the free encyclopedia

When the exemption was lower, a popular option in this situation was to use a QDOT:
Using QDOTs to Plan for Noncitizen Spouses | Nolo.com

 

[F4mandolin]

Uhhhh....at the moment I seem to be about 4 million short of that estate tax cutoff. When we go back to the UK in a couple of years I will cut off as much of my connection to the US as possible. Not that many relatives to come back to see.....and won't want to spend the time and money to make the trip very often anyway. At that time I plan on the UK being my home for the rest of my days. Only wrench in the works there would be if my wife dies before me (I'm 56 she is 53) which is unlikely, but could happen. If that happened in the next 10 years......not sure which direction I would go.
The question is which of the millions of different possibilities is the best financial way of doing so. I tried to get hold of one of the US/UK tax places already.....but didn't get anything back.....need to try again.

 

[F4mandolin]

So....if I get this right.....a number of you are so confident that the SS rules won't change that if they were in my situation....they wouldn't have their wives get citizenship.....yes? Or.....is it that they "think" the rules won't change. What would YOU do?

 

[haha]

So....if I get this right.....a number of you are so confident that the SS rules won't change that if they were in my situation....they wouldn't have their wives get citizenship.....yes? Or.....is it that they "think" the rules won't change. What would YOU do?

Well, I don't know how a mortal fallible person can do any more than think something, i.e. form an opinion.

My opinions all suck and are guaranteed to be wrong, so I best not offer one. If I already have, I hereby retract it.

Ha

 

[theOAP]

There is no way to know the future of course, but I was wondering if anybody was following/researching SS closely enough that they thought there might at some point be a change in policy in this to restrict SS to only US citizens.

Your concern is well founded, and I see no one has responded noting the (possible) impact of (possible) changes to the UK State Pension, and it's (possible) impact on the US/UK Totalisation Treaty.

Yes, it's me again. I apologise for being a thorn in your side, as usual.

Your issue has been thrown into unknown territory since last we spoke. I'll try to explain, but for right now I'm afraid there are no definitive answers. Everything is in the air at the moment concerning future claims for spousal benefits. Your and your wife's ages may be a problem.

The current situation:
A UKC only spouse (an NRA in US speak) of a USC, both living in the UK, may claim 50% of the USC's SSA benefit provided rules governing age, receipt of the SSA pension, etc. are met. This is clear in the SSA guidelines, and has been verified on US/UK expat forums a number of times by those already receiving the benefit.

The key to the uncertainty is that at present, a USC only spouse of a UKC, both living in the US, may claim 60% of the UKC's UK State Pension (provided rules.........are met), the result of the equality of the Totalisation Agreement.

CAVEAT: as usual, it is necessary to point out that the US/UK Totalisation Treaty is fairly unique, with only 8 or so countries having agreed with the US the above treatments of SSA/State pensions.

The future situation:
The potential problem arises with a change in the UK State Pension rules which have been proposed. Please note, the change has yet to become law, but it is assumed that the law will be passed soon. The proposed date for the actual change implementing the new pension rules is April, 2016.

The new rules activate a move to restrict an individuals pension benefits to the 'individuals' record of contributions. (The current understanding is) a spouse can no longer claim a benefit based on the State Pension benefit received by their partner. The implication is a USC spouse of a UKC, both living in the US, will no longer be able to claim 60% of the UKC's UK State Pension (the current situation).

The unknown is, of course, will the US reciprocate and not allow a UKC (NRA) spouse of a USC, both living in the UK, to receive a SSA benefit based on their USC spouses record after April, 2016. The assumption (big assumption) is that those benefits already in place by April 2016 will be unaffected. Hence, the problem with your age as I assume you will not be entitled to an SSA benefit by April, 2016.

BIG CAVEAT!!!!!!
At this time, no one knows what is going to happen! The law hasn't been passed, the UK DWP has issued no set rules since the law has yet to be passed, and the (possible) reaction of the US SSA is totally unknown as nothing is law yet in the UK!

My suggestion would be to keep abreast of the change in the UK State Pension rules once the law is passed. Trying to guess how the US SSA will react is PURE SPECULATION, on anyone's part.

Again, I apologise for making what is always a difficult and unclear situation (whether to obtain US citizenship) even more murky and unclear.

 

[daylatedollarshort]

Would it make ANY sense for me to drop my US citizenship after 5 years living in the UK and going for citizenship there? Connections here in the US are minimal. I guess I could move my TSP money over to Vanguard and then what?......pay US taxes still on money I drew out? Not sure how that would work.

I believe it is 3 years if your spouse is a UK citizen -

https://www.gov.uk/becoming-a-british-citizen/if-your-spouse-is-a-british-citizen

But you have to stay in the country for specified amounts of time. You can't get a home there and then travel most of the year to qualify.

 

[F4mandolin]

haha- you just keep cranking out the opinions......I was trying (unsuccessfully) to make a point that it's easier to give an opinion when a person doesn't have anything riding on it. In my case, getting my wife US Citizenship still may be the "best guess" response to our situation. That way if the rules for SS do change in the future I would assume she would be guaranteed to receive SS. Since we are not wealthy in any way.....that money is important.

OAP- Thorn in my side? Ya gotta be kidding. I will take advice from anybody.....I may not take the advice of course, but as far as I'm concerned, the more info the better our decisions will be. I am one of those people who really have trouble keeping all the in's and out's of UK/US taxes....this particular SS possible issue.....straight in my head. Very jealous of people with good memories. We did not know there might be a UK pension change coming....thanks. At this time.....it looks like we would be moving back to the UK the Spring of 2016-17...neither of us would be 60 yet. That part of your message about likely not getting my wife's pension if we stayed here in the US is moot. If/when we move to the UK....that is where we would be staying for good. The only possible move back to the US for me would be if she died within a few years of being back in the UK. I don't particularly care where I live, so I may end up staying in the UK anyway at that point. Any money after our deaths will be going to her kids in N Yorkshire anyway......so it is likely easier to just stay there. Bottom line....it still kind of looks like her getting US citizenship may be the smarter move.....it isn't hard to do and may guarantee her receiving SS in the future.

daylatedollarshort- no issue with the UK residence time. We are home-bodies and we would be living in the UK full time.

 

[Alan]

So....if I get this right.....a number of you are so confident that the SS rules won't change that if they were in my situation....they wouldn't have their wives get citizenship.....yes? Or.....is it that they "think" the rules won't change. What would YOU do?

I know you are going to the UK not Las Vegas, but it really looks like it is a throw of the dice whether you come out ahead, money-wise.

 

[haha]

haha- you just keep cranking out the opinions......I was trying (unsuccessfully) to make a point that it's easier to give an opinion when a person doesn't have anything riding on it. In my case, getting my wife US Citizenship still may be the "best guess" response to our situation. That way if the rules for SS do change in the future I would assume she would be guaranteed to receive SS. Since we are not wealthy in any way.....that money is important.
.

Whatever you assume seems best here, why get upset when that is all anyone can do, as how could they have what you apparently want, certain knowledge?

Everybody's money is important, not just yours. And so is their time. Actually I have very few opinions on this board, because about many things to have a supported opinion with what you say "has something riding on it" is the kind of thing that people rightfully earn a good living giving. Like I said, my opinions are worthless, so you can try to ferret out better free opinions on this or other boards, see a lawyer, or as a previous poster pointed out, consult some chicken entrails. Unknown is unknown, nothing we can do can make the future known.

Ha

 

[FIREd]

I was trying (unsuccessfully) to make a point that it's easier to give an opinion when a person doesn't have anything riding on it.

I am in your wife's situation, so I have something riding on it as you put it. Becoming a US citizen for financial reasons makes little sense to me, especially if one does not intend to stay in the US permanently. If you move back to Europe, your wife will have to deal with tax complications for the rest of her life and risks being blackballed by the financial system (FATCA) while living in her own country! Personally, I would not want those shackles. I would rather make plans in case I became ineligible for SS. Even if you stay in the US, plenty can happen to your wife's SS benefits. Spousal benefits could be reduced or eliminated for example. Or by the time you reach full retirement age, you SS benefit might have lost a lot of purchasing power if the government changes the way SS benefits are indexed for inflation for example. So personally, I am going for a well-padded nest egg and crossing my fingers.

 

[F4mandolin]

I am in your wife's situation, so I have something riding on it as you put it. Becoming a US citizen for financial reasons makes little sense to me, especially if one does not intent to stay in the US permanently. If you move back to Europe, your wife will have to deal with tax complications for the rest of her life and risks being blackballed by the financial system (FATCA) while living in her own country! Personally, I would not want those shackles. I would rather make plans in case I became ineligible for SS. Even if you stay in the US, plenty can happen to your wife's SS benefits. Spousal benefits could be reduced or eliminated for example. Or by the time you reach full retirement age, you SS benefit might have lost a lot of purchasing power if the government changes the way SS benefits are indexed for inflation for example. So personally, I am going for a well-padded nest egg and crossing my fingers.

More complicated taxes I can see.....since we would both have to submit taxes in both countries. From what others have told me, ours would still be a fairly simple (whatever that is in reality) tax situation. Not a lot of money, and not a lot of money coming in from pension/savings. Although....either way.....wouldn't she have to do US taxes if she were receiving US Social Security? Oh well....still time to drive myself nuts over it before we commit one way or the other.

Thanks for all comments/opinions.....all are welcome.

 

[theOAP]

Although....either way.....wouldn't she have to do US taxes if she were receiving US Social Security?

No, not if she were an NRA; resident in the UK; and the US SS was her only source of US income.

Caveat: this is, again, due to the fairly unique US/UK Double Tax Treaty. Only 8 or so other nations have this arrangement with the US.

 

[F4mandolin]

No, not if she were an NRA; resident in the UK; and the US SS was her only source of US income.

Caveat: this is, again, due to the fairly unique US/UK Double Tax Treaty. Only 8 or so other nations have this arrangement with the US.

Ooooooo, that's could be a game changer then. Thanks.

 

[theOAP]

Ooooooo, that's could be a game changer then. Thanks.

If she is an NRA (not a US Citizen), she would not be required to file a US tax return if her only source of US income is US SS. She would also only pay tax on the US SS amount to the UK (HMRC), and none to the US (and none would be withheld by the SSA).

If she is a US Citizen, she would be required to file a US tax return (if she met the threshold, but in this case, you would probably file MFJ). She still would not pay any tax to the US on the US SS amount, and would only pay tax on the US SSA pension to the UK (HMRC).