I have been surfing the HMRC website this morning and am now thoroughly confused about how the UK currently taxes income from foreign pensions.
I am a UK citizen residing in the UK, but during my lifetime I worked in the US for a few years, where I built up a small employer pension pot. Although I'm old enough to have been able to take this pension free of early payment penalty for 3 years now, I've actually not done that. As the modest pension sum hasn't been necessary to support my everyday expenses, I've been watching and waiting for the dollar/pound exchange rate to enhance the value of a lump sum payout of the pension, which I would then have transferred to my UK bank. With all the Brexit uncertainty, I've decided to pull the trigger now and so I was searching the HMRC and IRS websites this morning to refresh my understanding of how this process would work.
I had previously taken advice that (under the tax treaty) payment from this US based pension scheme would only be taxable in the US (so presumably I'd have to file a US non-resident tax return in 2020, to recover much of the tax Fidelity will automatically withhold, but this pension would be my only US income for the 2019 tax year). That minor hassle seems definitely worth it, to pay tax only in the US and at a lower rate.
EXCEPT, when researching the HMRC website today, I find all sorts of references to pension tax changes that came into effect last year. These talk about bringing the treatment of foreign pensions into line with how UK pensions are treated and specifically I found a reference implying the UK taxes lump sum distributions from foreign pensions! This seems to contradict my previous understanding. But I also came across their double taxation manual, which uses a US pension example (an IRA, but presumably the same treatment) to show how a lump sum pension payment could be taken tax-free in the UK. I'm confused!
So my question is: have the rules changed such that I can no longer get this lump sum without it being taxed in both countries, or (hopefully!) have I simply got the wrong end of the stick?