Ring in the New Year: What's in Store With the Changing U.S. Tax Code

A look at what's in store for U.S.-based British expats in 2018, including a glimpse at the Republicans' new tax plan plus a review of some important essentials.

If you've chosen to retire in the U.S., then no doubt you're keenly aware of the proposed tax changes. Spearheaded by President Trump and pushed through Congress by the Republicans, it has created quite a stir.

Changes for British Expats, Too

Expats are not immune to the changes. In fact, some will pertain directly to them in the years to come. The changes are generally positive, making the USA an even friendlier place to retire, financially speaking.

As you may already know, the UK has a social security agreement with the United States. Called a 'bilateral agreement' (or 'reciprocal agreement'), it protects your workers' rights while living in the USA as if you were a citizen.

Since the United States gives its own pensioners an annual increase in their Social Security checks, British expats will receive the same for their State pensions. Thus, as a British expat living in the United States, your State pension will increase every year.

That's not the case for UK state pensioners living in Canada and New Zealand, where UK pensions remain 'frozen' at their original amounts.

State Income Tax on Pensions

Here's another reminder of why a lot of British pensioners choose to retire in the United States. Not only do you receive an increase in your annual State pension in order to keep up with inflation, you also may enjoy your other pension distributions free of state income taxes. It varies state by state, so it's important to understand your own state's tax laws.

In Arizona, for example, Social Security benefits are exempt from taxation at the state level. Other retirement income like IRAs and private pensions are taxed at ordinary income rates.

New Mexico, on the other hand, does impose a tax on Social Security at the state level. There is special treatment for other types of retirement income, however. Every state is different, with different income tax ranges, different rules for retirement income, and different rules for inheritance taxes.

For inheritance taxes at the federal level, however, just one rule applies to everyone, and it's about to change.

The Federal Inheritance Tax

The new tax bill will greatly reduce the inheritance tax burden on taxpayers. Under the new rules, inheritance taxes now don't kick in until $11 million, which is nearly double the amount shielded under the old rules.

Keep in mind: This affects federal taxes, not state taxes. British expats who need to know about the inheritance tax in their state should consult with a financial advisor or contact the tax department in the state where they live.

Have More Tax-Related Questions?

The tax code is confusing enough, and when proposed changes like these come about, it's important that you understand what's in store for you. If you've got more questions about your UK pension and you live in the United States, please call. UK Pension Transfer LLC has more answers like these to help you navigate the US tax system during your retirement.