US 401K Withdrawals and tax treatment

Hello I am resident and employed in the UK and am 61 years old. I have a US 401K account from previous employment in the US. What is the most tax efficient way of receiving income from this 401K in the UK? I understand that the US will levy a 30% penalty tax if i withdraw the 401K into my US bank account, then I have the expense of the exchange to GBP. Does the UK-US Tax Treaty reduce this US penalty tax? Thanks Greg

Hi,

HMRC is unable to provide financial or tax planning advice.

You may wish to seek advice from a financial advisor or accountant.

Thank you.

Apologies my intention is not to ask for tax advice, I just want to understand the law, let me recast my enquiry as follows: - Does the UK-US Tax Treaty allow me to not pay the US 30% levy on my 401K withdrawal, and only pay UK tax on this income? - If so what tax forms do I need to complete in US and UK to enable this Thanks 

Name removed .

Hi,

Article 17(2) of the UK/USA DTA provides the US with the right to tax any Lump Sum payment which is made from a US sourced pension scheme (including IRAs). However, the UK is also permitted to tax the same lump sum payment(s), which is in accordance with Article 1(4) of the DTA .

In these situations, double taxation will occur since both the UK and the USA can tax the same income. However, that double taxation will be eliminated in accordance with Article 24(4)(a) of the DTA which requires the UK (as the country of residence) to provide FTCR to offset the US tax correctly paid against the UK tax charged on the same the IRA withdrawal. 

To claim relief, please refer to:

Double Taxation: Treaty Relief (Form DT-Individual)

Thank you.

Thank you, that's exactly what I needed to know