IRA Withdrawal - where to declare on self assessment

Hi, I am a UK citizen with an IRA account in the USA from when I worked there 20+ years ago. Previously I was informed by HMRC that any withdrawals should be declared on my self assessment using form SA106 and declared in the overseas pensions section. However having reviewed posts in the forum, HMRC have said that the IRA withdrawal should be declared in the Interest and other income from Overseas savings. This is because the UK does not recognise an IRA as a pension. Can someone please confirm where I should declare my IRA income? In the near I will also be claiming USA social security pension, will this be declared in the Overseas pension section? Thank you for your assistance.

Hi
This will be on the foreign section SA106 under interest

The IRA withdrawal is not an interest payment, it is a payment from a pension and is made up of capital and capital gain, so logically you would think it should be in the overseas pension section where I have been told to declare previously by HMRC. But thank you for the clarification that it should be declared in the Interest and Other income from overseas savings.

I am concerned about the apparently conflicting statements and claims I find in these pages on Traditional IRA withdrawals as a lump sum. The US-US Double Taxation Convention of 2003, which is in force, states in Article 17 (1) and (2): Pensions, social security, annuities, alimony, and child support 1. (a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State. 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. Note the clause 'other similar remuneration'. A Traditional IRA is a retirement financial vehicle which functions exactly like a UK Private Pension scheme, in that its growth and value is not taxed until the funds are withdrawn, and they cannot be withdrawn before the age of 59 1/2. Note too that gov.uk defines that ‘Private pension schemes are ways for you or your employer to save money for later in your life.' That is exactly what a Traditional IRA is also designed for. On what basis then does HMRC claim that a Traditional IRA is not 'other similar remuneration'? I would suggest that the Convention arrived at their statement and the specified definition (other similar remuneration) to ensure that the two systems were equivalent. By the way, I did consult a Specialist Tax Adviser who quoted me these clauses in the Convention to show that 17 (2) is in force.

An IRA can be withdrawn prior to 59.5, but there is a 10% levy. However, if you are a UK citizen and residing in the UK then the withdrawal is taxed in the UK and not in the USA due to Article 17(1) so the 10% levy is effectively not applied. My understanding is that a lump sum is the withdrawal of the whole pension and this is taxed in the US article 17(2). Of course I may be completely wrong, as I have received varying advice in the past, an example is my first post as to where the withdrawal is declared on the tax forms.

Hi MatildaJarvis Timewell,
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.
Thank you.

Hi Philip Wilson,

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 um, 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. 

Uk/USA Double Taxation Agreement - 2002

Thank you.
 

I am a dual US/UK citizen resident in UK and I have an IRA with a US institution. I am required to take regular annual distributions from my IRA based on my life expectancy. I consider that these annual required minimum distributions, currently about $20,000 per year, are periodic payments. If, in year 5, I take an extra voluntary distribution of $40,000, is that considered a lump sum under Article 17, paragraph 2? I can easily show that distributions that I've previously taken, although not on the same date each year, comply with an IRS requirement to pay out the entire amount of the IRA in periodic payments over my lifetime. Does the fact that I have to take the required minimum distribution every year mean that my voluntary distribution will not qualify as a lump sum?

Hi,

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

Thank you.

Current US tax legislation requires the owner of an IRA to take a distribution (that is, take a withdrawal) every year after the owner reaches age 72. The amount of the required distribution is fixed and depends on the value of the account and the life expectancy of the owner. Therefore the owner cannot select the years in which he/she takes a distribution or the amount of the distribution. Specifically, he/she cannot take one distribution in year 1, one in year 5 and one in year 7, and no others. If I take my required distributions every year and take an additional distribution (that is, in addition to the amount of the required distribution) in year 5, but in no other year, is that additional distribution considered by HMRC to be a lump sum?

Hi
Yes the additional one is a lump sum.