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Where Taxpayers and Advisers Meet

401k

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

401k

Postby Brightonian » Thu Dec 14, 2017 5:25 pm

My client is an Irish citizen but UK resident for many years. He once worked in the US and is now 65. He had a 401k plan and he is now making quarterly withdrawals. He chose quarterly payments rather than a single lump sum, as the latter would have been taxed in the US. It seems that the quarterly payments are not taxed in the US. Payments will continue for approximately 2.5 years and then the plan will have been fully depleted.
I am unsure how these payments are taxed in the UK. I did some research and looked at the DTA. Article 17 (1a) suggests that the money should be taxed in the UK but 17 (1b) seems to suggest that if it's exempt in the US, it should also be exempt in the UK. That's if it's a pension or similar remuneration. Article 17 (2) covers lump sum payments and suggests that such a payment would only be taxable in the US. The payments my client is receiving seems to be a series of lump sums, not a pension stream, but they are not being taxed (or at least withholding tax is not being operated) in the US.
At first I thought it looked fairly clear that my client would not be taxable in the UK but I researched further on the internet and am now confused. There is mention of a 'saving' clause and also mention of having to elect for treaty treatment. Does this simply mean making a claim for relief on the residence pages?
Has anyone come across this situation please?

DavidTreitel
Posts: 204
Joined: Thu Aug 16, 2012 4:31 pm

Re: 401k

Postby DavidTreitel » Thu Dec 14, 2017 7:41 pm

If your client elects into the treaty and you argue (as HMRC would most likely) that these are not lump sums, then they would be UK taxable as foreign pension income.

DavidTreitel
Posts: 204
Joined: Thu Aug 16, 2012 4:31 pm

Re: 401k

Postby DavidTreitel » Thu Dec 14, 2017 7:42 pm

Did your client incidentally ever have a US green card?

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: 401k

Postby Brightonian » Thu Dec 14, 2017 10:09 pm

Thank you, David. It looks as though I should just show them on the foreign pages with the 10% arising deduction in that case? I've never asked him if he has had a green card but he did work in the US for quite a few years.

DavidTreitel
Posts: 204
Joined: Thu Aug 16, 2012 4:31 pm

Re: 401k

Postby DavidTreitel » Fri Dec 15, 2017 4:39 pm

You will want to protect yourself by discovering if the client might be a US person by still holding an expired green card.

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: 401k

Postby Brightonian » Fri Dec 15, 2017 4:52 pm

I am not sure I understand. If I show these as pension payments on his UK tax return, do I have to do anything else? I am not responsible for any US liability although I will mention the point you raise. I assume you mean that the IRS could tax the payments too?

DavidTreitel
Posts: 204
Joined: Thu Aug 16, 2012 4:31 pm

Re: 401k

Postby DavidTreitel » Sat Dec 16, 2017 3:38 pm

If the client is still considered under US law to be a US person; he might have unexpected US tax liabilities. Any UK tax advice you offer or might have provided in the past might inadvertently increase his US tax liabilities or reporting obligations. Consequently, you would always want to know if any client of yours might be a US person.

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: 401k

Postby Brightonian » Mon Dec 18, 2017 10:10 am

Thank you so much for your help, David. Merry Christmas!


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