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?
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