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Posted Mon, 18 Sep 2023 12:49:49 GMT by HMRC Admin 10
Hi richard37 Thompson
IRA's are not recognised as pension schemes in the UK, so any withdrawal from them is classed as interest and is taxed as such.  
The beneficiaries of your IRAs after you die, will need to report the interest and overseas tax deducted in a self assessment tax return (SA100) and show the overseas interest and tax in SA106, each year.  
Roth IRA's are not taxable in the UK.
Posted Mon, 18 Sep 2023 19:35:11 GMT by
Re-iterating my point one final time. HMRC Admin 10, withdrawals/distributions of Traditional IRAs are considered *income* and not *interest* to the best of my knowledge. The distributions/withdrawals are taxable in the UK. Gains in the IRA are not taxable as interest (Article 18.1) as the income isn't distributed (tax deferral). It's true that Roth IRAs distributions including any gains over the original principal contributions are not taxable in any form. Advise other readers to look at other resources to confirm anything said in this thread.
Posted Wed, 20 Sep 2023 10:17:33 GMT by HMRC Admin 25
Hi fred,
This would imply the lump sum is taxable in the USA.
Thank you, 


 
Posted Wed, 27 Sep 2023 07:31:54 GMT by HMRC Admin 25
Hi richard37 Thompson,
No. They share the same tax rules on withdrawals.
Thank you. 
Posted Sat, 30 Sep 2023 14:31:22 GMT by
Following a complete early withdrawal (under 59 1/2 years old) of a ROTH IRA pension fund that then triggers 10% tax penalty by the IRS (because of the early withdrawal). Would HMRC maintain that the lump sum/total withdrawal of the fund is still treated as a ROTH IRA pension fund and remains tax exempt in the UK ? or something else? Article 17 (2). 'Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.' Thanks
Posted Mon, 02 Oct 2023 06:57:43 GMT by HMRC Admin 19
Hi All,

We apologise for the confusing replies we haved posted on the forum. Our double taxation policy team has reviewed the thread and has provided the following correct and final response:

The way in which payments from a US pension are taxed depends on the frequency of the withdrawals/payments from that pension:
  
Lump Sum Payments
 
There is no legislative definition of a lump sum but HMRC regards these as being any non-periodic payment of a pension, that is, any non-regular payment that decreases the value of the remaining pension pot after such payment is made. For example, the first (IRA) withdrawal is taken in year 1, the next withdrawal was made in year 5, and another withdrawal in year 7, such payments will not be regarded as periodic and will be treated as lump sums under the UK/USA Double Taxation Agreement (DTA). Whereas any amount withdrawn in set, periodic, frequent intervals, that is weekly, monthly, annually and so on would not be a lump sum, but rather periodic payments.
 
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, both Article 17(2) and Article 1(4) are outlined below and, when read from the perspective of a UK resident, state:
 
Article 17(2) - Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State [USA] and beneficially owned by a resident of the other Contracting State [UK] shall be taxable only in the first-mentioned State [USA].
 
Article 1(4) - Notwithstanding any provision of this Convention except paragraph 5 of this Article, a Contracting State [UK and/or USA] may tax its residents, and by reason of citizenship may tax its citizens, as if this Convention had not come into effect.
 
A UK resident, Article 1(4) above permits the UK to tax any US sourced lump sum payment received, as if Article 17(2) of the DTA was not in force or applicable, Article 1(4) effectively ‘overrides’ the provision at Article 17(2), and the consequence is that both the UK and USA can tax any lump sum payment received from a US sourced pension scheme.
 
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 Foreign Tax Credit Relief (FTCR) to offset the US tax correctly paid against the UK tax charged on the same the IRA withdrawal.

Uk/USA Double Taxation Agreement - 2002 
 
Periodic Payments
 
Periodic, frequent, payments or withdrawals, that is weekly, monthly, annually and so on, then those payments would have been taxable within the UK and ‘maybe’ exempt from US tax. This is in accordance with Article 17(1)(a) of the DTA which, again from the perspective of a UK resident, states:
 
‘Pensions and other similar remuneration beneficially owned by a resident of a Contracting State [UK]shall be taxable only in that State [UK].’
 
As a result, these periodic payments are fully taxable in the UK and should be declared to HMRC on the foreign income pages (SA106) of a Self Aassessment return. If US tax has also been paid on those payments, then it is important to note that no UK tax relief can be claimed to offset that US tax charge against any UK tax due. Instead, you must approach the US Internal Revenue Service (IRS) to claim US tax relief and the type of US tax relief available will differ depending on whether or not you are a US citizen.

If you are not a US citizen, then periodic pension payments will be fully exempt from US tax and you should claim a full repayment from the US IRS. However, if you are a US Citizen, you will only be permitted to claim the US version of FTCR, which will offset the UK tax paid against a US tax charge. This is because the US taxes its citizens worldwide income, regardless of where they are resident. So, if you are a US citizen, then Article 1(4), as outlineD above, would kick in again and, this time, allow the US to tax any periodic payment received, despite Article 17(1) providing the UK with the sole right to tax. Again, Article 1(4) effectively ‘overrides’ Article 17(1), and the consequence is that both the UK and USA can tax any periodic payments received.
 
In these situations, double taxation will occur since both the UK and the USA can tax the same income. However, this time, it is for the US to eliminate that double taxation, since they are the ones invoking Article 1(4). This is in accordance with Article 24(1)(a) of the DTA, which states:
 
‘In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income:
 
a.    the income tax paid or accrued to the United Kingdom by or on behalf of such citizen or resident.’
 
In summary, both periodic and lump sum payments from traditional IRAs are taxable in the UK and need to be declared on the on the foreign income pages (SA106) of a Self Assessment return, the only difference is that periodic payments are taxable in the UK, so any US tax paid on those payments should be refunded by the IRS or, if you are a US Citizen, you should claim the US version of FTCR and offset the UK tax paid against the US tax charge. Whereas ’non-periodic’ or lump sum payments are taxable in both the UK and USA, in this situation, the UK should provide FTCR to offset the US tax correctly paid against the UK tax charged on that payment.
 
Roth IRAs
 
These are usually exempt from tax in the USA, under US domestic laws. However, it is the taxpayer’s responsibility to check with officials within the USA to confirm/establish that their Roth IRA is/is not exempt from tax in the USA. If the Roth IRA is in fact exempt from US tax, then it will also be exempt from tax within the UK. This is in accordance with Article 17(1)(b) of the UK/USA DTA which, from the perspective of a UK resident, states the following:
 
‘Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in the other Contracting State [USA]that would be exempt from taxation in that other State [USA]if the beneficial owner were a resident thereof shall be exempt from taxation in the first-mentioned State [UK]’.
 
This position is also re-affirmed in HMRC guidance within the Double Taxation Relief Manual, which is published online under DT19853, and this states:
 
‘Pensions (Article 17)
 
Article 17 provides for the taxation of pensions and other similar remuneration only in the state of residence of the beneficial owner. For this purpose, a payment is treated as a pension or other similar remuneration if it is a payment under a pension scheme, as defined at Article 3(1)(o).

DT19853 - Double Taxation Relief Manual: Guidance by country: United States of America: Notes
 
IRAs
 
Contrary to this general rule above, the residence state, under paragraph 1(b), must exempt from tax any amount of such pensions or other similar remuneration that would be exempt from tax in the State in which the pension scheme is established if the recipient were a resident of that State. Thus, for example, a distribution from a US Individual Retirement Arrangement or "IRA" to a UK resident will be exempt from tax in the UK to the same extent that the distribution would be exempt from tax in the US.’
 
Although Roth IRAs maybe exempt from UK tax, it is highly recommended that the taxpayer declares the amount they received from their Roth IRA within the additional notes section of their UK tax return. This declaration will not lead to that income being taxed but it will ensure it is fully declared to HMRC. We would recommend the taxpayer quotes the amount they have received, converted into pounds from US dollars, and a short statement to explain why they believe that income is exempt from UK tax.

If you have particularly complex questions on double taxation we suggest you seek the advice of an accountant or tax advisor to ensure you have your affairs correctly in order as HMRC does not give tax planning advice. 

Thank you.
 
Posted Thu, 05 Oct 2023 13:16:56 GMT by HMRC Admin 32
Hi,

Yes, as the penalty is not the same as paying tax on it. If not taxable in the US then its not taxable in the UKt.

Thank you.
Posted Mon, 09 Oct 2023 11:24:59 GMT by
Apologies if this has already been answered but I found the details in the thread a little confusing. I gave up my US citizenship 6 years ago and paid a final exit tax, so I no longer do annual US tax returns. I am UK citizen and resident. I have just withdrawn my Rollover IRA in the USA, I am over age 59.5. Should I wait for the IRS to contact me, as the withdrawal will be reported to the IRS anyway? Should I also report it on my UK tax return as income?
Posted Tue, 31 Oct 2023 09:35:47 GMT by HMRC Admin 19
Hi,

We cannot advise whether you should contact the IRS, as this is nothing to do with UK tax liabilities.  

IRA's are taxable in the UK as foreign interest, as they are not recognised as pension schemes in the UK and payments into the IRA receive tax relief at the time they were made.

Thank you.
Posted Mon, 13 Nov 2023 13:59:09 GMT by
I have a 401k plan and being over 59 1/2 and believe I can access the money without being liable for US tax. In the event that I do so, am I (i) liable for UK income tax at my marginal rate and (ii) would HMRC consider that I have accessed my pension and impose limits on my UK pension contributions?
Posted Mon, 13 Nov 2023 14:42:54 GMT by
I should add a correction to the above post. My understanding is that the 401k would not be liable for US tax if it were to be taxed in the UK. In the event that a lump sum withdrawal was taxed in the US, would there be any further tax liability in the UK and would HMRC consider that I have accessed my pension and impose limits on any further UK pension contributions.? See box 7699 
Posted Wed, 15 Nov 2023 14:54:10 GMT by HMRC Admin 5
Hi paul wooler

There is no legislative definition of a Lump Sum but HMRC regards these as being any non-periodic payment of a pension - That is, any non-regular payment that decreases the value of the remaining pension pot after such payment is made.
For example, the first (IRA) withdrawal is taken in year 1, the next withdrawal was made in year 5, and another withdrawal in year 7; such payments will not be regarded as periodic and will be treated as Lump Sum’s under the UK/USA DTA. Whereas any amount withdrawn in set, periodic, frequent intervals (e.g. weekly, monthly, annually etc.) would not be a Lump Sum, but rather periodic payments.  
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 – Both Article 17(2) and Article 1(4) are outlined below and, when read from the perspective of a UK resident, state:  
Article 17(2) - Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State [USA]and beneficially owned by a resident of the other Contracting State [UK]shall be taxable only in the first-mentioned State [USA]. 
Article 1(4) - Notwithstanding any provision of this Convention except paragraph 5 of this Article, a Contracting State [UK and/or USA]may tax its residents, and by reason of citizenship may tax its citizens, as if this Convention had not come into effect.  
A UK resident, Article 1(4) above permits the UK to tax any US sourced Lump Sum payment received, as if Article 17(2) of the DTA was not in force or applicable – Article 1(4) effectively ‘overrides’ the provision at Article 17(2), and the consequence is that both the UK and USA can tax any Lump Sum payment received from a US sourced pension scheme.  
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. 

Thank you
Posted Thu, 16 Nov 2023 08:36:58 GMT by
Thank you for your response. To be clear, I do not have an IRA. I have a 401(k) which is defined by the US IRS to be "a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts". I think your response means that if the lump sum withdrawal is subject to tax in the US, I would remain liable for further taxation in the UK up to my marginal rate. Can you please provide your response on that point. Can you also please comment on having withdrawn my 401(k) would HMRC consider that I have accessed my pension and therefore limits on any further UK pension contributions would apply.?
Posted Fri, 17 Nov 2023 15:20:13 GMT by HMRC Admin 32
Hi paul,

Yes if subject to US tax, it needs to be declared in UK. for the limit to pension, please see:

HS345 Pension savings — tax charges (2023) - Income Tax on other lump sums and drawdown pension from overseas pension schemes

Thank you.
Posted Fri, 17 Nov 2023 16:16:56 GMT by
thank you for your response and sorry to be so pedantic but I am not sure you have addressed the specific question; does withdrawing my 401(k) result in HMRC determining that I have accessed my pension and therefore meaning I would be subject to limits on any further UK pension contributions would apply.?
Posted Fri, 17 Nov 2023 17:19:46 GMT by
Hi - with reference posted 2 months ago by HMRC Admin 19 an the response from the 'Double Taxation Team'. The interpretation is interesting and useful, however, it is also in disagreement with other opinions and interpretations (including with specialist tax consultants that i have spoken with). Therefore I have the following questions: 1) To what extent is feedback on this forum enforced in practice - i.e. in this case, is it practical law or is it opinion of an HMRC tax consultant? 2) If this is enforced in practice, please provide the link / reference to official interpretations or legal rulings where this has been applied since the treaty came into force. Specifically I have not come across any tax specialist who suggests that the 'Savings Clause' is applied to lump-sum payments from a 401(K) that are fully declared and taxed in the US in accordance with the UK/US Tax treaty Article 17(2). Thanks G
Posted Wed, 22 Nov 2023 11:02:45 GMT by HMRC Admin 20
Hi Gary Pilkington,
The purpose of this forum is to provide general tax advice on a wide range of matters and to direct our customers, using links to guidance and forms, that will help an individual make their own informed decisions.  Where you disagree with the advice provided, you should consider seeking professional advice on the matter, to help you reach an informed decision.  Where detailed reponses are being sought, you should write to HMRC at:-
H.M. Revenue and Customs
Pay As You Earn
BX9 1AS
or telephone the Pay As You Earn helpline on 0300 200 3300.
Thank you.
Posted Thu, 04 Jan 2024 12:39:51 GMT by HMRC Admin 20
Hi paul wooler,
Please take look at the Pensions Tax Manual, specifically PTM113310 - International: UK tax charges on non-UK schemes: the annual allowance charge and non-UK schemes: essential principles for guidance around this topic.
If you still find the guidance/legislation is unclear, you would need to contact our self assesment helpline on 0300 200 3310 or contact our webchat facility at Contact HMRC.  
We would also recommend that you consider speaking to a pensions advisor.
Thannk you.
Posted Thu, 11 Jan 2024 11:58:24 GMT by
Could you please confirm whether a 'lump sum' distribution from a 401k or IRA would receive would be eligible to receive the 25% tax free lump sum amount. For example an individual (US citizen residing in the UK) makes a full distribution (lumpsum) of their 401k in the sum of £100,000, as explained above under the US/UK Tax Treaty this would be taxable in both the US and UK. For UK tax purposes could the taxpayer claim 25% of the lump sum to be tax free and therefore be taxed in the UK on just £75,000 of the full distribution (lump sum). Thank you in advance.
Posted Mon, 15 Jan 2024 12:14:49 GMT by HMRC Admin 10
Hi
Overseas pensions schemes do not benefit from the 25% tax free lump sum and therefore in this case, the full £100k would be taxable.

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