UK citizen in the UK wants to close out USA Traditional IRA and bring monies home to the UK.

I worked 10 years in the USA but returned home 12 years ago. I have a Traditional (as opposed to Roth) IRA that I need to terminate and bring the monies home. An accountant in the US tells me that I can opt NOT to utilise the UK/US tax treaty when I withdraw my monies. He says I will initially get 30% withheld by the IRS, BUT (given the amount I wish to withdraw) I'll eventually get 10% back, making the actual tax 20%. He also says that when I transfer the monies to the UK, HMRC will have no interest in it, and no further tax will be due. Is this advice correct? I ask, because (according to him) if I were to use the tax treaty, I will end up not paying US tax, but I WILL end up paying 40% in the UK as it will take me into the higher tax threshold. Thanks for any help people can give me.

Hi,

UK/US citizens resident in the UK are taxable on their IRA interest in the UK. IRA's are treated differently from Roth IRA's, in that they are taxable in the UK under foreign interest. The gross interest would be declared in the self assessment tax return, using the supplementary page SA106. The interest would be treated in the same way as UK interest and attract that starting rate of £5000.00.  

Have a look at:

Tax on savings interest

DT19852 implies that tax is not payable in the USA on this interest. 

Thank you.

Hi HMRC Admin 32, Thank you for your reply but I'm not sure it it applies to my case. My IRA only holds stocks/shares and therefore gains in value due to dividends and share price increases not from interest. And I intend to withdraw the entire amount and close the IRA. Thus it is similar to cashing in the US equivalent of a SIPP, and once cashed in transferring ALL the cash ($150k) to the UK. My US CPA tells me that if I DO NOT use the US/UK tax treaty, I'll pay US tax on the withdrawal, but no UK tax when I transfer it to a UK bank account. This would reduce my overall tax % as my US tax burden would be 20% whereas my UK tax burden would be around 40%. I would just like confirmation that my CPA's is correct in HMRC having no interest in monies that have already been taxed by the US? Thank you.

Hi,

UK/US citizens resident in the UK, are taxable on their IRA income in the UK. If US tax is withheld you should seek a refund of this tax. HMRC will not give you a credit for this tax against any UK tax charged on this income.

Thank you.

Hi HMRC Admin 32 I have a US-based IRA pension, and am tax resident in the UK. Your advice above is of interest to me. You've stated that "UK/US citizens resident in the UK are taxable on their IRA interest in the UK." I note that you say interest and not income - this is from your first reply. I interpret this to mean that a US IRA is essentially treated like a general investment account by HMRC (i.e. interest and dividends, even within an accumulating ETF within the IRA wrapper, are taxable), instead of being treated like a SIPP (where interest and dividends are not taxed). Is that correct? However, Article 18, Section 1 of the UK/US Double Taxation Treaty states: "Where an individual who is a resident of a Contracting State is a member or beneficiary of, or participant in, a pension scheme established in the other Contracting State, income earned by the pension scheme may be taxed as income of that individual only when, and, subject to paragraphs 1 and 2 of Article 17 (Pensions, Social Security, Annuities, Alimony, and Child Support) of this Convention, to the extent that, it is paid to, or for the benefit of, that individual from the pension scheme (and not transferred to another pension scheme)." My interpretation of this is that any income (i.e. interest and dividends) earned within a US pension can only be taxed as income in the UK when the money is paid out of the pension. That is to say that HMRC should treat a US pension like a UK SIPP, and let interest and dividends within the pension roll-up free of income tax, until such time as the funds are withdrawn. As I hope is clear, my understanding of your comment and of the tax treaty are in direct contradiction. Please can you help me understand which of these interpretations is correct? I.e. is a US pension effectively treated like a UK SIPP, or like a general investment account, in terms of how interest and dividends earned within the pension wrapper are taxed? Many thanks.

Hi BobJ79,
Payments made by you into an IRA, are made after tax relief is given to you, by the employer.
Payments from this pension are taxable in the USA.
HMRC does not recognise IRA schemes as pensions or self invested pension plans (SIPPs), so for UK residents, you are taxed as income under interest and declared as foreign interest on a tax return (SA106).
There is no US taxation if the pension is subject and liable to UK tax.
If US tax is withheld, then you, should seek a refund of this tax (file a form 1040NR).
HMRC will not give a credit for this tax against any UK tax charged on this income.
Article 18 does not apply to IRAs.
Thank you. 
 

I am a retired UK citizen living in the UK. I worked in the US from 2006 - 2011. I have a small IRA ( just over $7000 ) in the US which I now want to withdraw to the UK I have sought advice from two professionals and have read these HMRC answer above - None of the advice agrees with any of the others ! My specific questions here are these: 1) Does the small amount of my investment change anything or will the answers be just the same as above ? 2) is a 1040NR form a IRS form ? if not please explain. 3) at what point on the timeline should a 1040NR be submitted - before or after UK tax has been incurred 4) Can you please bear in mind I find the "jargon" used by finance / tax professionals quite hard to understand can you please answer in simple English. Many thanks

Hi mike,
Roth Individual Retirement Accounts payments to a UK resident that are not taxable in the United States are not taxable in  the United Kingdom. Have a look at DT19852 - Double Taxation Relief Manual: Guidance by country: United States of America: Treaty summary Note 2 in relation to other pensions. 
There is no US taxation if the pension is subject and liable to UK tax. If US tax is withheld you should seek a refund of this tax (file a form 1040NR), HMRC will not give you a credit for this tax against any UK tax charged on this income.
Thank you.

I have a question about HMRC Admin 25's last response: "HMRC does not recognise IRA schemes as pensions or self invested pension plans (SIPPs), so for UK residents, you are taxed as income under interest and declared as foreign interest on a tax return (SA106)." What exactly is the basis for HMRC's position that a traditional IRA cannot be recognised for UK tax purposes as a pension or SIPP? It behaves similarly to a UK defined contribution pension and sets limits on withdrawals relative to the planholder's age.

Hi,
This guidance has been set by legislation.
Thank you

I have a question for the HMRC. I am currently residing in the UK and have a Roth IRA and a traditional IRA, from when I used to live in the US. These are held by an investment firm based in London. Is there any way I can transfer these into a UK-based system, such as an ISA or SIPP? Or, do I need to keep them with the investment company?

Hi ,
 

You cannot directly transfer a 401(k) plan to a UK pension scheme as these are not accepted as pension funds . Thank you .

Hi Admin 34, Can you please be more specific about which article of which statute you are relying on for HMRC's position on traditional IRAs?