UK income tax allowances

Old Feb 12th 2014, 9:43 pm
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Default UK income tax allowances

So it's been a while since I lived in the UK. I am thinking of spending some time back in the UK when I retire and I have a tax question. There's no more married couple's tax allowance, correct? The way it looks now, everyone is taxed as an individual. So, if one is married, and only one spouse is earning, the tax allowance for the other spouse is completely wasted? So what if - hypothetically speaking - I were to live in the UK taking ad-hoc withdrawals from my IRA in the USA. What is to prevent me reporting this income as belonging half to myself and half to my wife, in order to take both our tax allowances? And come to think of it, does the Inland Revenue have any access to my IRA distribution record in the US, or is the self-reporting of income totally on the honor principle?
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Old Feb 13th 2014, 10:44 am
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Default Re: UK income tax allowances

The "Individual" part of IRA is there for a reason; you can't have a joint IRA, so I would be uncomfortable claiming that half the income is your wife's for UK tax purposes.

The IRS will not share information with other agencies and I can't imagine that your IRA administrator would either. Of course if you were to claim that your wife owns a foreign retirement account and gets income from it, it wouldn't be accurate.

What you could do would be to do a IRA to ROTH rollover which is not a UK taxable event. You'd pay US tax, but get the "married filing jointly" deductions and exemptions. Withdrawals from the ROTH (after 59.5) would then be penalty and tax fee in US and UK. You will have to figure out the deductions, exemptions, tax brackets and the amounts involved in the transfer to get the best result.
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Old Feb 15th 2014, 4:21 pm
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Default Re: UK income tax allowances

Originally Posted by nun View Post
What you could do would be to do a IRA to ROTH rollover which is not a UK taxable event. You'd pay US tax, but get the "married filing jointly" deductions and exemptions. Withdrawals from the ROTH (after 59.5) would then be penalty and tax fee in US and UK. You will have to figure out the deductions, exemptions, tax brackets and the amounts involved in the transfer to get the best result.

We are in this situation and plan to do the same. This last 4 years I have been doing IRA to ROTH conversions and have another 3 US tax years before moving to the UK. Even so I'll still have plenty more to convert but will use this option, that nun has researched and describes here, to keep the taxes on the conversions payable in the US only.

Since retiring 4 years ago about 40% of our income comes from dividends and cap gains from our after tax investments, and what we have done is to remove my name from the joint accounts so that we will maximize the deductions in the UK and keep our marginal tax rates in the 20% band.
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