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401k 30% tax withheld? Can I reclaim back in UK

401k 30% tax withheld? Can I reclaim back in UK

Old Oct 11th 2020, 2:04 pm
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Default 401k 30% tax withheld? Can I reclaim back in UK

Hi,
I cashed out part of my 401k. I'm a NRA, UK citizen. They took out 30%, and I'm led to believe that since the 401k is pre tax dollars, there is no way I can reclaim the tax back from the IRS, to later declare on my UK tax return. I had to fill out a W8 Ben form in order to do the withdrawal, but why, if I can't get the tax back?

does anyone have a clear answer on this?

thanks

Rob
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Old Oct 12th 2020, 7:52 am
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

I believe you must file a 1040NR to pay and/or get a refund. If this was a lump sum withdrawal you may find you have no HMRC tax to pay, I know that my lump sum IRA to Roth conversions are only taxed by the IRS. If HMRC taxes are paid on the IRA withdrawal then when filing US taxes with the 1040NR you can claim back the taxes paid to HMRC using a foreign tax credit (IRS form 1116).

with income that has never been taxed you are going to have to pay someone I’m afraid.
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Old Oct 12th 2020, 1:28 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

I actually don't mind paying the 30% to the IRS if that's their rules and laws. I don't want to then have to pay more tax to HMRC. How should I declare this on the UK self assessment tax forms?

Or heaven forbid, do I declare it, pay UK tax and then try to reclaim that back from HMRC

thanks
Rob
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Old Oct 12th 2020, 3:30 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by robbhubbard View Post
I actually don't mind paying the 30% to the IRS if that's their rules and laws. I don't want to then have to pay more tax to HMRC. How should I declare this on the UK self assessment tax forms?

Or heaven forbid, do I declare it, pay UK tax and then try to reclaim that back from HMRC

thanks
Rob
You still didn’t say how you “cashed out part of your 401k”. If it was multiple withdrawals then it would, I believe, need to be reported to HMRC as regular income and taxed as such.

If it was a one-off lump sum then it is taxed only by the IRS. In the explanation space in section 19 of the HMRC return you can indicate how much it was and that it is only taxed by the IRS as per the tax treaty between the USA and UK.
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Old Oct 12th 2020, 4:50 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

It was a partial withdrawal. Not the whole 401k. (I intended to make a partial withdrawal every year). So, maybe I'll be OK with the section 19 of the HMRC return.

thanks

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Old Oct 12th 2020, 5:37 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by robbhubbard View Post
It was a partial withdrawal. Not the whole 401k. (I intended to make a partial withdrawal every year). So, maybe I'll be OK with the section 19 of the HMRC return.

thanks

Rob
You should be okay if that partial withdrawal was a single lump sum, not multiple withdrawals over the year.
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Old Oct 13th 2020, 2:27 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by durham_lad View Post
You should be okay if that partial withdrawal was a single lump sum, not multiple withdrawals over the year.
According to the link below 'A lump-sum distribution is the distribution or payment within a single tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans).'
https://www.irs.gov/taxtopics/tc412

Therefore, a partial distribution is not a lump sum distribution. It is my understanding that a non-US citizen resident in the UK will be taxed in the UK, and not the US, on 401k partial distributions, even if there is only one in the tax year.
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Old Oct 13th 2020, 2:50 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by Aoi View Post
According to the link below 'A lump-sum distribution is the distribution or payment within a single tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans).'
https://www.irs.gov/taxtopics/tc412

Therefore, a partial distribution is not a lump sum distribution. It is my understanding that a non-US citizen resident in the UK will be taxed in the UK, and not the US, on 401k partial distributions, even if there is only one in the tax year.
The definition of the lump sum as far as HMRC is concerned is what matters, not the IRS definition, the IRS are going to tax the withdrawal anyway.

You may well be correct but the US/UK treaty, section 17 on pensions, states the following:
Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.



Last edited by durham_lad; Oct 13th 2020 at 2:58 pm.
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Old Nov 6th 2020, 2:01 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

I believe I have it all sorted out now. I did get a tax credit on my UK tax return, so I don't have to pay double tax.

What is the tax situation regarding ordinary (non 401k) US mutual funds and stocks?

thanks Rob
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Old Nov 6th 2020, 2:48 pm
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by robbhubbard View Post
I believe I have it all sorted out now. I did get a tax credit on my UK tax return, so I don't have to pay double tax.

What is the tax situation regarding ordinary (non 401k) US mutual funds and stocks?

thanks Rob

Good to hear that you got the tax credit okay.

As a UK resident you are taxed on your worldwide income so HMRC will tax any dividends and capital gains from stocks and mutual funds. If the stocks are individual stocks trading on the US stock exchange they should be treated the same as stocks would be trading in the London stock exchange so you get favourable tax treatment on dividends and capital gains.

Mutual funds almost certainly don't report into HMRC so all dividends and capital gains will, I believe, be taxed as regular income. Before we left the USA I converted our mutual funds to their ETF equivalents and made sure that they are on the list of HMRC Reporting Funds so we do get the much better tax treatment when filing our taxes with HMRC.

Full list of HMRC Reporting Funds in the link below, downloadable into an Excel Spreadsheet.

https://www.gov.uk/government/public...eporting-funds
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Old Nov 10th 2020, 3:20 am
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by durham_lad View Post
Good to hear that you got the tax credit okay.

As a UK resident you are taxed on your worldwide income so HMRC will tax any dividends and capital gains from stocks and mutual funds. If the stocks are individual stocks trading on the US stock exchange they should be treated the same as stocks would be trading in the London stock exchange so you get favourable tax treatment on dividends and capital gains.

Mutual funds almost certainly don't report into HMRC so all dividends and capital gains will, I believe, be taxed as regular income. Before we left the USA I converted our mutual funds to their ETF equivalents and made sure that they are on the list of HMRC Reporting Funds so we do get the much better tax treatment when filing our taxes with HMRC.

Full list of HMRC Reporting Funds in the link below, downloadable into an Excel Spreadsheet.

https://www.gov.uk/government/public...eporting-funds
Durham Lad , I have ETfs with Charles Schwab .. I looked at the link you shared about reporting funds and not sure what this all means .. I just thought if I converted my mutual funds to ETFs with Schwab then that would be ok ?? This is so confusing for me.. I probably should check if Schwab here in California knows how to advise me ? Thanks
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Old Nov 10th 2020, 7:40 am
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Default Re: 401k 30% tax withheld? Can I reclaim back in UK

Originally Posted by countrygirl33 View Post
Durham Lad , I have ETfs with Charles Schwab .. I looked at the link you shared about reporting funds and not sure what this all means .. I just thought if I converted my mutual funds to ETFs with Schwab then that would be ok ?? This is so confusing for me.. I probably should check if Schwab here in California knows how to advise me ? Thanks
Good idea. Provide them with the link to the HMRC funds. Each of their ETFs will probably have an ISIN which is a unique number identifying each fund and the ISIN is one of the columns in the list of funds so is easy to search for.

https://www.investopedia.com/terms/i/isin.asp
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