chawkins99

I have a pension in the UK from 20+ years ago. Currently, it's around £11,000 so below the personal tax allowance if I take it all as cash. I have no other UK income and am over 55.

So, can I withdraw the money without paying UK tax and would it then be liable to tax in the US?

Lololita

Tax will be deducted from your payment, but HMRC will refund it to you. (You can fill out some forms to make your UK status no-tax, but you don't need to just for this)

Regarding US tax liability, I asked the same question on the main board and the response was that US tax has to be paid on it.

Jimmysforeveryone

The tax man always gets involved, it seems. The IRS code even has provisions for illegally-obtained funds!

BuckinghamshireBoy

I've just been down this route.

You should be eligible for 25% tax free, the rest will be taxed at the marginal rate, and the pension provider is obliged to do this. However, as the remaining 75% is within the personal allowance, you should get a full refund upon your next tax declaration.

HMRC are very helpful on this kind of thing these days.

chawkins99

I have since discovered it's closer to £25,000. I'm debating now whether to just let it ride.

Is the 25% tax-free a one-off or could that be taken annually?

I could take a big chunk off my mortgage with that but if it's taxable in the US, it's not worth it.

BuckinghamshireBoy

The 25% is legislation, and is I believe a one-off.

But, if your pension provider allows it, you can split the balance over several chunks, withdraw each chunk - keeping it under the UK personal allowance limit - and spread that over two/several years. That way you can avoid UK tax completely, and legitimately.

plasticbag_uk

I had an old UK pension with a company I left in 1994, I never contributed a penny towards it even when I worked for them. Three years ago I contacted the pension section and had the whole amount which had grown to $27,000 transferred to my bank account here with no penalty.

chawkins99

By 'no penalty' do you mean no tax (on either side of the pond)?

BuckinghamshireBoy

That would have been before the change in legislation which came in in April 2016.

There were guidelines in place, similar to the current legislation, but the workings were left to the discretion of the pension fund managers. For 'lower' amounts, some would allow a total withdrawal as described by plasticbag_uk, some wouldn't.

The rule of thumb - according to my IFA - was that if the amount was around £25,000 or less, then there was a reasonable chance that the whole amount could be taken. I was on the point of making the request, but some miracle occurred (!) and the latest quote put me a few thousand higher than the 25k 'guideline' figure.

I suspect that company pension funds would have been more sympathetic than private pension funds.

BuckinghamshireBoy

Also, if you have a pension in the US, it might be worth looking at QROPS?

This link may give some pointers.

I looked at taking the QROPS route to bring mine into Switzerland a few years ago, but ran into too many brick walls to go through with it.

plasticbag_uk

I didn't have to pay UK tax as I came under the double taxation rules, I did provide evidence that I pay tax in the USA, but having declared the amount in my US taxes I still didn't pay tax on the amount.

chawkins99

So, the £25,000 pot is actually 2 separate policies. Looks like one was from employer's contributions and the other employee's contributions. One is £12,000 ish. The other £13,000 ish.

I am thinking of cashing one in this tax year and the other next year to get the personal tax allowance on both.

According to the pension company, I can take 25% tax free and the remainder they would tax at "40-45% emergency rate" and I could reclaim the tax. She repeated the 40-45% several times. Obviously reading from a script. The remaining 75% would fall under the current £10,850 personal allowance so I should be able to reclaim all of the tax.

Any ideas on how/where/what form I need to reclaim the tax?

BuckinghamshireBoy

It depends on if you generate any other UK income. Do you regularly do a UK self assement? If not, I believe the form is S100, but if you give HMRC a call, with a bit of luck you'll get passed through to some very helpful and knowledgeable people who will tell you what you need.

chawkins99

I haven't done anything UK tax related since moving to the US 15 years ago. No other UK income whatsoever.

I only tracked this pension down last year. Don't know if I'm supposed to declare it on my US tax return.

BuckinghamshireBoy

Can't help on that one, sorry.

Just checked my notes, I have generated additional UK income for the first time in 30 years, so maybe that's why I was advised to use S100. - which should have read SA100.

See also SA102 and SA109, although they may not apply in your case.