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Tax Free Lump Sum USA transfer - complication

Tax Free Lump Sum USA transfer - complication

Old May 23rd 2023, 7:52 pm
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Default Tax Free Lump Sum USA transfer - complication

I recently converted 2 UK pensions into a NOVIA UK SIPP.
I requested that they transfer 25% as a Tax Free Lump Sum to me in the US. (I am a US resident and citizen).
NOVIA informed me that in order to effect the transfer they had to sell all the holdings that were in USD (all of the SIPP) and convert them to GBP.
This is so that they can calculate the 25% and declare to HM Gov. They then have to repurchase my holdings.
All this exposes the SIPP to exchange and market movement.
Have others experienced this?
Is there a work around?
Thanks your your help.
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Old May 23rd 2023, 8:16 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

I am no expert, but just wondering if they make any money off buying and selling holdings and doing FX?
I think a bigger problem will be whether the Tax Free Lump Sum is recognised as such in the USA
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Old May 23rd 2023, 8:32 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

I'm sure there are a number of parties making money on the unnecessary transfers which is why I'm hopeful for a workaround.

I'd prefer not to open this thread to the US tax issues as there are plenty of others discussing that.
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Old May 23rd 2023, 11:05 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

As a US citizen the 25% tax free UK lump sum will be taxed in the US anyway, so there is nothing to be gained by taking a 25% tax free lump sum within the UK. Why not retain the funds within the SIPP enjoy the tax free growth in both countries but do a normal drawdown and take whatever cash you want, or need, whenever. Depending upon your income you can optimize the tax bill by drawing down select amounts each year to minimize the tax bill. The bottom line is that as a USC there is no work around to paying taxes on the entire amount.

Beware there are a very small number of “professionals” who claim it can be tax free. These outfits stand out like a sore thumb from the mainstream. You could try and use their services but it will cost you a hefty fee probably not leaving much of your tax free savings, and if the IRS disagrees the fines and penalties will be eye watering. The IRS is very serious about reporting and paying tax on foreign accounts. They are a force to be reckoned with if you get into their cross hairs, they won’t just take a “good try attitude, now let’s sort it out”. With that said, if you try it, good luck and let others know how you get on.

Last edited by Glasgow Girl; May 24th 2023 at 12:10 am.
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Old May 24th 2023, 3:25 am
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Default Re: Tax Free Lump Sum USA transfer - complication

Once again my question is not about the "tax free" but about the plan of the SIPP to sell all my holdings in order to effect payment.
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Old May 24th 2023, 7:15 am
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Default Re: Tax Free Lump Sum USA transfer - complication

Originally Posted by Clarets
Once again my question is not about the "tax free" but about the plan of the SIPP to sell all my holdings in order to effect payment.
As Glasgow Girl states since any withdrawals will not be taxed by the UK anyway (you are not a UK tax payer), would a normal distribution of 25% of your SIPP have to go through this circuitous and expensive route? Or does the UK tax SIPP withdrawals even for residents in the USA?

Another thought is to open a Wise borderless account with a UK account denominated in GBP. It comes with a UK sort code and account number and you ask NOVIA to transfer the money here, then do the transfer to your US bank yourself. I do this in reverse in that I am a USC living in England and have a Wise account denominated in USD linked to my US Vanguard retirement account and transfer USD from my IRA to my Wise account then move it to my UK bank account.

Last edited by durham_lad; May 24th 2023 at 7:19 am.
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Old May 24th 2023, 1:56 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

Originally Posted by Clarets
I recently converted 2 UK pensions into a NOVIA UK SIPP.
I requested that they transfer 25% as a Tax Free Lump Sum to me in the US. ....
You said this is not your question, but your question makes no sense, because as a US resident there is no tax-free lump sum.
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Old May 24th 2023, 2:17 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

As i have said, i am no expert and my SIPP holdings were not in USD so i have not had to convert them, and therefore not much help to you. But it strikes me you have a choice - assuming you did your due diligence when moving your SIPP to them, you can either trust them and go ahead, or not. To me, this would ring all sorts of alarm bells
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Old May 24th 2023, 3:19 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

Originally Posted by Clarets
I recently converted 2 UK pensions into a NOVIA UK SIPP.
I requested that they transfer 25% as a Tax Free Lump Sum to me in the US. (I am a US resident and citizen).
NOVIA informed me that in order to effect the transfer they had to sell all the holdings that were in USD (all of the SIPP) and convert them to GBP.
This is so that they can calculate the 25% and declare to HM Gov. They then have to repurchase my holdings.
All this exposes the SIPP to exchange and market movement.
Have others experienced this?
Is there a work around?
Thanks your your help.
what kind of “holdings” other than cash will they transfer… if your concern is FX risk that’s easy to hedge short term.. as is market risk if it’s a vanilla product, or you can at least approximate with an option on DIA or some other broad based index…
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Old May 24th 2023, 3:41 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

Originally Posted by Clarets
Once again my question is not about the "tax free" but about the plan of the SIPP to sell all my holdings in order to effect payment.
OP, time to face your tax obligations.

Pay up.
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Old May 24th 2023, 10:30 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

You may be able to wait for a few months/years to eliminate the FX charges. I looked into the Novia SIPP, but didn't like it for several reasons. One reason was the double FX charges for selling US investments and giving you back USD (which was one of the main points of the account), and it didn't look easy to take the 25% pcls as you're finding. They did mention to me that the double FX charges would be eliminated at some point but there was no commitment. Other reasons include reputation of Novia and overall fees. Ended up with AJ Bell SIPP at 0.2% fee against the 1.0% + that you have with Novia plus lots of little extra fees that all add up. If you don't take the pcls then I think they only need to sell the holdings to fund your withdrawal which makes things easier.
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Old May 24th 2023, 11:51 pm
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Default Re: Tax Free Lump Sum USA transfer - complication

Originally Posted by leuler
You may be able to wait for a few months/years to eliminate the FX charges. I looked into the Novia SIPP, but didn't like it for several reasons. One reason was the double FX charges for selling US investments and giving you back USD (which was one of the main points of the account), and it didn't look easy to take the 25% pcls as you're finding. They did mention to me that the double FX charges would be eliminated at some point but there was no commitment. Other reasons include reputation of Novia and overall fees. Ended up with AJ Bell SIPP at 0.2% fee against the 1.0% + that you have with Novia plus lots of little extra fees that all add up. If you don't take the pcls then I think they only need to sell the holdings to fund your withdrawal which makes things easier.
Which brings the conversation right back to the fact that because there is no tax free lump sum for US citizens why go through all this angst to achieve absolutely nothing. Simply sell whatever is required to meet cash needs, pay the taxes and move on.

As a side note I do agree that AJ Bell is far superior. Transfer out of NOVIA and into AJ Bell is free.
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