How is US income reported to the UK?
Aug 16th 2023, 2:11 pm
#1
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How is US income reported to the UK?
US/UK dual citizen, I moved back to the UK in April. I do not work in either country, nor am I receiving pensions. It's not clear to me what my UK tax situation is. Are 401k withdrawals from US retirement accounts reported to HMRC? I'm not sure if I need to do a self-assessment or just wait until the end of the tax year.
Aug 17th 2023, 7:39 am
#2
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Re: How is US income reported to the UK?
401k withdrawals are taxable in the UK, as regular income, just like in the USA. If you moved here in April you won’t need to file a self assessment tax return until next year. Being a dual citizen you will also have to file a US return where any UK taxes paid will be credited against your US taxes so you won’t pay taxes twice. If the 401k distributions are your only source of income your tax free personal allowance of over £12.5k will minimize your taxes.
Before moving back after I retired I converted my 401k into a Roth over a number of years, paying US taxes on the conversions, because Roth withdrawals are tax free in both countries.
I think if you took your 401k withdrawals as a lump sum each year you may not be liable to UK taxes on it since you can withdraw up to 25% tax free from a UK pension scheme. However, it is not something I have done and I’m not a tax expert.
You can assume that money distributed from a 401k is reported to HMRC. The consequences of tax evasion can be severe.
Before moving back after I retired I converted my 401k into a Roth over a number of years, paying US taxes on the conversions, because Roth withdrawals are tax free in both countries.
I think if you took your 401k withdrawals as a lump sum each year you may not be liable to UK taxes on it since you can withdraw up to 25% tax free from a UK pension scheme. However, it is not something I have done and I’m not a tax expert.
You can assume that money distributed from a 401k is reported to HMRC. The consequences of tax evasion can be severe.
Aug 17th 2023, 1:22 pm
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Re: How is US income reported to the UK?
I looked back at a recent HMRC return where I had withdrawn a lump sum from my Roth IRA. The words below are what my London based dual qualified tax preparer put in the return. This is why I think that if you only made your 401k withdrawals as annual lump sums then they would only be taxable in the USA.
During the 2019 calendar year, I received a lump sum from my Roth Pension Fund totalling of $xxx. Since this is a lump sum from a US plan, it is subject to US tax only and exempt from UK tax and has therefore not been included in this return.
Aug 19th 2023, 2:49 pm
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Re: How is US income reported to the UK?
From HMRCs own website, lump sum withdrawals from a US retirement account such as an IRA will only be taxed by the USA. HMRC also state in this article that the US has the right to tax a lump sum received by a US citizen from a UK retirement scheme.
https://www.gov.uk/hmrc-internal-man...relief/dt19853
https://www.gov.uk/hmrc-internal-man...relief/dt19853
Lump Sums
A lump-sum payment derived by a resident of one State from a pension scheme established in the other State shall be taxable only in that other State.
The provision preserves the exemption from income tax of a lump sum relevant benefit where it is paid by a UK approved pension scheme to a beneficial owner who is a US resident. However, Article 1(4) will apply in respect of US citizens as the provisions of Article 17(2) are not amongst those listed at Article 1(5). So, the US can tax lump sums received by US citizens from UK schemes.
A lump-sum payment derived by a resident of one State from a pension scheme established in the other State shall be taxable only in that other State.
The provision preserves the exemption from income tax of a lump sum relevant benefit where it is paid by a UK approved pension scheme to a beneficial owner who is a US resident. However, Article 1(4) will apply in respect of US citizens as the provisions of Article 17(2) are not amongst those listed at Article 1(5). So, the US can tax lump sums received by US citizens from UK schemes.
Aug 21st 2023, 11:28 am
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Re: How is US income reported to the UK?
No problem.
Just to be absolutely clear. I believe that if, say, you wanted $2,500 / month from your 401k then withdraw $30,000 in a lump sum rather than multiple withdrawals. Next year do the same thing. I don’t believe you would need to file an HMRC return if that was your only overseas income.
Just to be absolutely clear. I believe that if, say, you wanted $2,500 / month from your 401k then withdraw $30,000 in a lump sum rather than multiple withdrawals. Next year do the same thing. I don’t believe you would need to file an HMRC return if that was your only overseas income.
