URGENT: UK citizen in the UK has an IRA (not a ROTH). Are withdrawals taxable in the UK?

Hi, I have a US traditional IRA worth over £100,000. It's similar to a SIPP and withdrawals (called distributions) are treated as income in the US and subject to income tax. I want to close the IRA and bring the £100,000 to the UK. If I use the Tax Treaty I think there would be no tax to pay, but is that £100000 fully taxable in the UK - namely is it treated as income and thus most of it will be taxed at the higher rate of 40%? Or, if I don't use the tax treaty and pay US tax at around 20%, do HMRC still want to tax it? Any help on this urgent matter would be appreciated.

Hi Dave,
HMRC does not recognise IRA's as a pension scheme.
An Individual Retirement Accouunt (IRA) considered a savings account and withdrawls are treated as income in the UK and taxed as interest.
As you are resident in the UK, then withdrawals will be taxable in the UK.
If you are a US national, your withdrawal will be taxable in the US and the UK.
You would be able to claim a tax credit for overseas tax paid on the withdrawal.
If you are a UK national, then it is not taxable in the US, but is still taxable in the UK.
Thank you. 

 

Hello, Thank you for taking the time to respond, but I am confused. You say 1) "An Individual Retirement Account (IRA) considered a savings account ", and then 2) "and withdrawls are treated as income in the UK and taxed as interest." Withdrawals from savings accounts are not normally taxable, only the interest, so if an IRA is considered by the HMRC to be a savings account, are you really saying that (UNLIKE!) a savings account, all of a withdrawal is taxable, even if that withdrawal is a lump sum? Thank you

Hi,

It is the IRA interest that is taxable in the UK.

Thank you.

I am a UK citizen, resident in the UK, but have a company 401k languishing in the US, as well as SS benefits, after working there for 21 years. Would it be advisable to convert this to an IRA, or leave in the 401k, and the take drawn down payments at my retirement in November 2025? If so, what would be my tax liabilities, both UK and US?

Hi James Hemmings,
HMRC cannot give out financial advice.  
You will need to seek the advice of a professional, for an answer to your question.
Thank you.


 

To HMRC Admin 2, Above you say "It is the IRA interest that is taxable in the UK." How is that assessed? Say a UK resident/citizen who is a "Non Resident Alien" but held an IRA (from time in the US) which is invested in the US stock market (say $100,000 in year 1) and grows in value over a few years to say $120,000 in year 4. 1. Would HMRC want a cut of that growth every year even though the growth remains invested in the IRA? 2. If a distribution of $10,000 is taken, how is the "interest" portion of the $10,000 distribution calculated?

Hi Bill2468
It is the actual withdrawal that is the 'income' not where the IRA is invested.
Thank you.