aquatone

I emigrated to the USA from the UK over 21-years ago and am considering semi-retiring. I have no plan to ever live in the UK again, became a US citizen in 2006 and am now 58-years old.

I have a long frozen UK private pension that I would like to now draw upon and my UK pension company says I have complete freedom to access these funds as I am over 55.

My question is, can I draw from my UK pension directly by merely declaring the amount on my next US tax form? As the amount is in excess of 100,000 pounds I may not withdraw everything in 1-year for US tax reasons. I have not paid UK taxes since 2000 and believe I am protected from double taxation under tax equalization. Has anyone done this?

I know about International SIPP's plans and have spoken to various brokers offering transfer services with fees. In my case however I do not need to invest these funds any further. They are a very small part of my total retirement investments all of which are in the USA. I would much prefer to start withdrawing from my UK pension directly without paying any third party fees and don't really see what advantage a SIPP's provides. Taxes I can handle.

I would welcome any advice or experiences. If this is not the right place, perhaps there are other forums where these pension issues can be discussed?

Chris

lansbury

I believe the question you are asking is can you arrange to take and have a UK pension paid directly to you in the US. If that is correct yes you can. Many of us have UK pensions paid to us here. Between my wife and I have four.

You may need to fill out the required forms to have them paid tax free in the UK. Then just declare the income on your US tax return.

ETA form links

https://www.gov.uk/government/public...orm-us-company

https://www.irs.gov/individuals/inte...ation-requests

aquatone

Thanks so much for the response! Yes, I would like to draw down my UK pension now that I am over 55 and no longer wish to invest it for the long-term. From your comments it seems I can indeed have it paid to me directly (declaring it to the IRS for tax purposes) and that I don't need to bother with SIPP's plans or QROPS or other vehicles that I assume are more suitable for frozen pensions that cannot yet be touched by those too young to access them.

Never having done this before the confirmation is comforting! The most important thing I learned based on your comments is that I don't need any intermediary, agent or other fee charging individuals or organization and can just deal with my pension company direct.

Chris

lansbury

Most UK pension companies can pay a UK pension straight to a US bank in dollars. Just be aware (a) your US bank may charge for incoming wire transfers, and (b) if the transfer goes through an intermediary bank in the US they will levy a charge as well. (a) you can ask your bank about, unfortunately (b) is a bit of a wait and see when the first transfer is done.

Cook_County

Under the treaty lump-sums are only taxed by the UK; and are not taxed by the US. Hopefully the plan has been reported every year on your 8938 and FBAR so there are no other US tax issues.

aquatone

Yes, my accountant has been disclosing my UK pension plan to the IRS over the past few years in my returns, as I have signatory authority over a foreign account over $100,000. I believe that involved separate forms FBAR and 8938.

By lump sum, do you mean the 25% which is tax free in the UK will also be tax free in the USA under treaty? I assume the other 75% is taxable.

Chris

lansbury

He is a US citizen living in the US surely the lump sum is taxable.

https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt19876a -

the last paragraph Lump Sums or am I misunderstanding what is written there?

retman

The HMRC linked document differentiates between a US Citizen and a US resident. According to HMRC a US resident who is NOT a US citizen is not taxed on 25% lump sum, whereas a US citizen is. I'm not sure the IRS would agree to this interpretation.

kodokan

It will likely depend on the terms of your plan. Hubby has a pension in the UK (old employer, money purchase rather than final salary) which only allows claimants to annuitize. If they want to take it all out as cash, or do drawdown, they need to first transfer it to another provider. And many UK pension providers won’t open an account for a non resident, so that will be... fun to sort out.

aquatone

I communicated to the holder of my UK pension and received back the following response:

"Unfortunately the option to flexibly access your plan is not available overseas. The options that are available to you are taking all your pension as a lump sum, taking an annuity or transferring to another scheme. All funds are sent over in sterling and then your bank will transfer into USD and you would still be taxed in the UK. We do provide you with a substitute P45 so you can claim back any taxes owed with HM Revenue and Customs."

I have no interest in an annuity. It appears that my only options are:

(1) To draw out my entire pension as a lump sum. However as the amount is considerably over 100,000 pounds that could trigger a larger tax band event than drawing it out in smaller chunks over several years. Also, I am a little concerned about being taxed in the UK and how easy it is to get a refund on that tax. Does anyone have any experience of this?

(2) To transfer the plan into an international SIPP's. I have spoken to two companies who do this who tell me I could draw down at any time and that there is no tax at (the UK) source. They could also extract 25% UK tax free immediately as it is being transferred. The downside is that the fees vary between 1.075% and 2% for the one time initial transfer to the custodian, and 1.075% to 1.25% annual management.

It seems my options are a balance between higher taxes and the risk of getting a refund from the UK (how ever long that takes) versus the fees associated with a SIPP's. Either way, someone wants a bite out of my pie.

Interested in other experiences and if I am getting the right information.

Chris

MidAtlantic

One possible solution would be to examine how other UK providers would handle this. I know that AJ Bell accept UK pension transfers by US residents/citizens into a SIPP (I have done it). If they would then allow draw down, as and when you required it, you may have a solution.

lansbury

I have had to reclaim tax a few times. It is relatively easy and quick. In fact on 2 occasions HMRC discovered the over payment and refunded themselves.

The only drawback is they send you a sterling check. Not a problem for me as I post it back to my UK bank, but a problem if you don't have a UK bank. No amount of asking would get them to transfer it directly to my bank.

aquatone

Thanks for the insight. I closed my last UK bank account years ago and have no account in the UK. (My sister does if I can designate another payee) I suppose I can look at opening one at HSBC my last bank over 10-years ago but not sure if that is now realistic.

It's looking like the SIPP may be the best option. I get hit with fees but I can draw down the pension more slowly without pushing my income into the highest tax bands in any one year. Either way seems I lose on either fees or taxes. (Especially as I live in California)

Chris

aquatone

An update. My pension company tells me that if I withdrew my private pension as a lump sum, (my only direct option) it would be taxed at an emergency rate of 45%. Though I can try and get a refund from the Inland Revenue, thats a large amount to risk all at once on the hope of successfully getting a refund.

Seems that a transfer to an International SIPP is the only way I can access my pension without punishing immediate taxation on the whole sum, albeit with some fees involved.

durham_lad

Just saw this thread on possibly using Transferwise Borderless account when you don’t have a UK bank.

http://britishexpats.com/forum/movin...pening-908347/

https://transferwise.com/gb/borderle...ning-908347%2F