Hi HMRC Admin 20,
Apologies, I'm not sure I follow, and I'm not sure I understand which 'paragraph 1' you are referring to? I'll attempt to summarise and perhaps you would be kind enough to correct any errors;
- I understand that traditional IRA interest would be taxable in the UK. I did not and do not have any traditional IRAs. I did have a Roth IRA.
- I understand that Roth IRA payments that are not taxable in the US, are not taxable in the UK. The gains on the Roth IRA at the point I took the lump-sum payment were taxable in the US. Does this mean that I should have paid tax on the Roth IRA gains in the UK as well? Does this not fall under "lump-sum payments"?
- I take that to mean that 401k lump-sum payments should then only be taxed in the US, based on the lump sum paragraph in DT19853?
I would be grateful for any clarifications.
Thanks in advance.
Thank you for the reply.
I took lump-sum withdrawals from a 401K, and from a Roth IRA. Under US tax the 401k withdrawals were taxed on their whole value, and the Roth IRA withdrawals were taxed on the gains only (as the Roth IRA is funded from post-tax income).
The section 'Pensions (Article 17)' in DT19853 states that; "A lump-sum payment derived by a resident of one State from a pension scheme established in the other State shall be taxable only in that other State."
My understanding from that statement is that the lump-sum withdrawals from both 401K and Roth IRA should only be taxed in the US (as the state in which the pension scheme is established). Is that correct?
I am a UK citizen and previously lived and worked for several years in the US, returning to the UK in 2018. During my time in the US I contributed to a 401K and a Roth IRA.
In 2020 I withdraw as lump sum payments the entire balance of both 401K and Roth IRA accounts, declaring this on a 2020 US tax return, and electing to pay the tax over three years (2020, 2021, and 2022). I did not declare this on my UK tax return as I believe based on article 17 in DT19853 and the discussion under the thread "Double tax on US pension incomr"(*), that the lump-sum payments are not taxable in the UK and should not be declared in the UK, as they have been declared and taxed in the US.
Is this the correct interpretation?
I have now received a letter from HMRC indicating that I may have overseas assets, income or gains on which I have not paid the right amount of tax, and this is the only thing I can think it could be related to.