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Where Taxpayers and Advisers Meet

US pension lump sum for UK citizen

evaeva
Posts:3
Joined:Fri Sep 01, 2017 6:11 pm
US pension lump sum for UK citizen

Postby evaeva » Fri Sep 01, 2017 6:22 pm

Worked in the US years ago and I now have US based company provided pension there which is offered to me early, in one lump sum. Or I can wait to draw an annuity once I am 60 (still a long wait!). Guess it costs more to administer than it's worth, hence the limited time offer.

What does the US - UK tax treaty Article 17 actually say? It reads like a foreign language. Normally there is a 30% withholding for lump sums for US based pensions. Does the treaty apply - and reduce this to 0% - or will I be hit with the whole 30%?

What is then my tax obligation in the UK? I am under 55.

Double taxation coming up if I go for the early cash in? Thx!

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: US pension lump sum for UK citizen

Postby DavidTreitel » Sat Sep 02, 2017 7:34 pm

This is a common question. Assuming you elect into the treaty on a self-assessment return, if you take a lump-sum most folks read the treaty as saying this is only taxable in the US.

Assuming you are not a US person, you will owe US tax calculated on your 1040NR for 2017 including a 10% penalty for early withdrawal. 30% is merely a withholding rate, rather than the final liability.

evaeva
Posts:3
Joined:Fri Sep 01, 2017 6:11 pm

Re: US pension lump sum for UK citizen

Postby evaeva » Sun Sep 03, 2017 4:15 pm

Thank you. Much appreciated.

Does this 30% withholding qualify for exemption deduction on 1040NR? Which is in the region of $4,000 by now I Imagine? It would be my only US based income this year.

The 10% extra penalty probably does not so that's a direct hit.

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: US pension lump sum for UK citizen

Postby darthblingbling » Mon Sep 04, 2017 3:29 pm

Has HMRC ever given any more guidance as to what constitutes a lump sum distribution in their eyes?

I know for a full distribution (as in this chap here) there is likely little argument. But I see some people assuming an irregular distribution from their 401k is a lump sum in the eyes of HMRC.

evaeva
Posts:3
Joined:Fri Sep 01, 2017 6:11 pm

Re: US pension lump sum for UK citizen

Postby evaeva » Wed Sep 06, 2017 10:59 am

Well, I decided to leave the pension in the States for now, start drawing it at 60 and live till 100. I think I'll be ahead. Plus there is another pension pot there anyway which will need admin at 60.

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: US pension lump sum for UK citizen

Postby DavidTreitel » Thu Sep 07, 2017 9:44 pm

Has HMRC ever given any more guidance as to what constitutes a lump sum distribution in their eyes?

I know for a full distribution (as in this chap here) there is likely little argument. But I see some people assuming an irregular distribution from their 401k is a lump sum in the eyes of HMRC.
Yes; this is frequently discussed. What is your firm's view?

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: US pension lump sum for UK citizen

Postby darthblingbling » Thu Sep 07, 2017 11:20 pm

I personally see it as the full distribution within one single tax year as the article seems to be written with the US in mind. But as far as I know HMRC have not challenged this view which is surprising. I'm guessing they feel they fear losing such a case and opening the floodgates?

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: US pension lump sum for UK citizen

Postby DavidTreitel » Sat Sep 09, 2017 11:35 am

I personally see it as the full distribution within one single tax year as the article seems to be written with the US in mind. But as far as I know HMRC have not challenged this view which is surprising. I'm guessing they feel they fear losing such a case and opening the floodgates?
HMRC frequently discuss the treatment of US qualified plans and have hosted regular meetings to discuss this issue. Hopefully, anyone with an interest in or a distribution from a US plan is disclosing their position as to whether or not UK tax may be payable in the white space.

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: US pension lump sum for UK citizen

Postby darthblingbling » Mon Sep 11, 2017 12:28 pm

I personally see it as the full distribution within one single tax year as the article seems to be written with the US in mind. But as far as I know HMRC have not challenged this view which is surprising. I'm guessing they feel they fear losing such a case and opening the floodgates?
HMRC frequently discuss the treatment of US qualified plans and have hosted regular meetings to discuss this issue. Hopefully, anyone with an interest in or a distribution from a US plan is disclosing their position as to whether or not UK tax may be payable in the white space.
Sounds interesting, are there any minutes for these meetings? I'm a simple trainee and new to all this, but I am taking a keen interest in US/UK tax relationships.


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