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Posted Tue, 07 May 2024 18:04:12 GMT by RedSquirrel
Can I ask regarding my situation please - I am a UK citizen and had to open an inherited IRA-BDA account when my Aunt passed away, I withdrew a small lump sum in 2023 of 15,000 dollars (30% withholding tax was deducted from the lump sum). My question is do I now need to register for self-assessment and fill out Form SA106 to declare foreign interest? My only other income was from part-time employment for tax year 2023/2024 of £3,000. If this is the case, is it correct that the lump sum is classed as inheritance and that I would only need to declare the interest which would have accrued on the account when I withdrew the lump sum in September 2023. The gross interest would be approximately £610.
Posted Tue, 14 May 2024 15:35:36 GMT by HMRC Admin 8
Hi,
Its not clear if the initial fund was in an IRA for this question to be confirmed. you may want to call 0300 200 3310 for specifc guidance.
Thank you.
Posted Wed, 15 May 2024 19:06:30 GMT by Michael Young
Hi - I think there is some confusion certainly for me on the definition of interest and balance on an IRA in the UK. 1. UK "Interest" seems to be US "distributions" from the IRA and ARE fully taxed as they happen? 2. UK "Balance" is the same as US "Balance" within the account so all the ongoing buying, selling, dividends etc within the account that change the account value or Balance are NOT taxed. Then lump sum vs regular distributions in the UK: distributions are counted as regular if they meet xyz criteria which seems to be monthly, annually etc and fully taxed. 3. So exceptional cased like liquidating all IRA's at once would be a lump sum distribution NOT taxed in the UK (but would be in the US)? Are these statements correct (plus any clarity on Lump Sum eg. Liquidating multiple IRA's on an irregular basis)?
Posted Mon, 20 May 2024 10:44:23 GMT by HMRC Admin 19
Hi,

From the UK's perspective, an IRA in not a pension and so, it is not taxed as a pension, irrespective of its status in the USA.  

It is treated as a savings account and taxed in the UK, under the rules for interest. It is not covered by the tax treaty on pensions, but that of interest. Regular payments and lump sums are taxable as interest. If you still have concerns, you should perhaps consider seeking the advice of a professional, such as an accountant.

Thank you.
Posted Tue, 21 May 2024 20:59:33 GMT by Michael Young
So, if I have a stock in an IRA that I sell (still inside the IRA so no US tax), do I pay capital gains tax in the UK on that sale (still inside the IRA) as I would in a regular brokerage account - or only get taxed on when I withdraw cash from the IRA as "interest"? This is important as I could sell and immediately rebuy all my holdings in the USA to reset the cost basis to current prices, THEN move to the UK and have zero tax to pay in the UK if I then turn round sell all the (reset cost basis) assets and take the cash out. Is the "interest" tax only on cash withdrawals or is there tax on buying and selling assets (and dividends) that remain in the IRA?
Posted Fri, 24 May 2024 14:00:52 GMT by HMRC Admin 32
Hi,

The internal running of the IRA is not taxable. It is only when lumpsums are taken out of the IRA or frequent sums at regular intervals are withdrawn, that there is a UK tax liability, if you are resident in the UK.

Thank You.
Posted Fri, 24 May 2024 18:41:15 GMT by RedSquirrel
HMRC Admin 8 - Yes I can confirm the initial fund was in an IRA.
Posted Mon, 27 May 2024 11:44:50 GMT by Latitude
Dear HMRC, I have some questions related to the above regarding IRAs. There are several kinds of IRAs: Traditional IRA, Roth IRA, Simplified Employer Pension (SEP) IRA, SIMPLE IRA, as well as inherited versions of Traditional and Roth which have been mentioned. Where HMRC Admin 19 says "From the UK's perspective, an IRA in not a pension" I think "IRA" refers to "Traditional (Inherited)" IRA, as other questions/answers mention that Roth IRAs are different. I understand the answers given above to mean that Traditional IRAs do not "generally correspond" to a UK workplace pension scheme, but contributions may be tax-deferred (if the account was opened before beginning work in the UK), growth within the account is not taxed, but withdrawals are taxed as savings interest. Is that correct? Roth IRAs differ in that contributions are post-tax and withdrawals are tax-free in the US. Are Roth IRAs considered to "generally correspond" to a UK pension scheme in any sense? I understood the treaty position on these to be that they do not correspond, but contributions are post-tax and growth and withdrawals are untaxed in both US and UK regimes. (thus making them, in UK terms, more like an ISA though with restrictions on withdrawals). Is that correct? Finally, SEP IRAs and SIMPLE IRAs are Traditional IRAs that employers (including self-employed individuals who might be working outside the US) can also contribute pre-tax income to (which is a deductible business expense for the employer). They are similar in some respects to SIPPs, employees can contribute up to the fairly low annual Traditional IRA limit but employers can contribute up to higher limits (something like the lesser of 25% of employee pay or $67k for SEP IRAs) making them potentially more attractive for the self-employed given that there are tax reporting complications for US tax residents having SIPPs. Are SEP IRAs or SIMPLE IRAs considered to "generally correspond" to any UK pension scheme (e.g. SIPPs or SSAS)? And if so would employee or employer contributions to them be tax-deferred / deductible as business expenses for UK tax purposes? Does this depend on whether the employer is UK tax resident (e.g. a self-employed individual paying employer contributions)? I asume that the answers regarding non-taxation of growth and taxation of withdrawals are the same as for Traditional IRA. I have looked and not seen anything specific about SEP IRAs or SIMPLE IRAs on this forum. They are specifically listed (as "individual retirement plans that are part of a simplified employee pension plan that satisfies section 408(k), individual retirement accounts, individual retirement annuities, section 408(p) accounts, and Roth IRAs under section 408A" in the "exchange of notes" as of July 2001 appended to the treaty. Specifically SEP IRAs are section 408(k) and SIMPLE IRAs are section 408(p). Thanks in advance
Posted Wed, 29 May 2024 10:32:41 GMT by HMRC Admin 21
Hi RedSquirrel,
You will not declare the inheritance and any tax due is only on the interest that is received from the IRA, this is declared as foreign interest.
Posted Fri, 31 May 2024 11:14:17 GMT by HMRC Admin 21
Hi Latitude,
We can only provide general information / guidance in this forum.  For an answer to a detailed question of this nature, you would need to contact our self assesment helpline on 0300 200 3310, contact our webchat facility at Contact-HMRC or seek professional advice.
Thank you.

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