Tax questions from US taxpayer beneficiary of UK SIPP
 

Hi

I’m a UK citizen living in the US since 2011. My father (UK citizen and resident) recently passed away. He had named me as one of the beneficiaries of his SIPP. He had passed his 75th birthday which would make the bequest taxable at my UK marginal rate if I were a UK resident, but being an expat I am not sure what UK tax I am liable for. (My UK income is normally just a few quid from savings and I have not submit tax returns since emigrating.)

How do I determine the tax payable to HMRC? Would it be the same as a non-resident earning money in the UK? I guess I’d have to file a Self Assessment Tax Return, and ought I get the same personal allowance and tax brackets as a resident would get?

It seems it is possible to keep the money inside a SIPP, but it is not clear whether that would change the UK tax liability. Would it count as a pre-tax contribution and the tax goes down?

I believe that gifts and bequests from non-US citizens/residents are not liable to any US tax but that I should probably file Form 3520 with my US tax return. The amount will be less than the $100,000 mentioned on the form.

Would I be able to get a credit for any UK tax paid on my US Form 1116, as the UK tax is effectively taxed as income? That sounds too good to be true…

Thanks
Martin

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Hi

I used to work in the U.K. as a SIPP specialist and i now work in the U.S.

So the way a SIPP works is that it is a pension trust. You are known as a member trustee so you do not actually own the assets within the trust you are merely a beneficiary of the trust. So the pension plan is not taxed on interest or gains whilst it remains in the trust.

If you do take money out it would not incur any U.K. tax liability if you fail to meet the Statutory Residence Test, which being resident of the U.S. since 2011, it is unlikely that you would meet any of the tests.

You will be taxed on the income at your marginal rate of tax in the U.S. when you decide to take funds out of the plan.

Your pension company will likely be required to complete W8-BEN-E requests so you will want to make sure that they are capable (and willing) to do this in respect of their reporting obligations.

The form 3520 may be required together with the FATCA form 8938 we do work with an accountant that I would be happy to provide you the details of.

Feel free to PM me if you would like more help.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Thanks for the response. So is it correct to say that if I keep the money in a SIPP there's no tax to pay anywhere, until one day in the future I start to draw from it?

I'll PM you for the accountant details. I normally prefer to look after my own affairs but on this occasion I'm realising I'm a bit out of my depth.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

If you can treat the SIPP as a pension plan under the tax treaty then there will be no tax until you take income and which point you'll have to pay US tax. If you treat it as a foreign trust then there will be extra US filings.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Got it, thank you.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Now that paperwork is progressing I finally got round to calling my father's SIPP provider - Hargreaves Lansdown - and they are saying they won't do business with a US resident and the only option to me is to take the lump sum. I asked if it was possible to keep it in a SIPP and transfer it out to another provider who will take US residents e.g. A.J. Bell but the guy on the phone said no. The person I spoke to did not instill great confidence in their knowledge and kept referring questions to a colleague, so there may be a key question I could ask to get me an outcome more to my preference. Has anyone got any advice?

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

As a dual UK/US citizen I transferred my SIPP, plus other stakeholder pensions to an AJ Bell SIPP, with no issues. I did it to consolidate my various UK pensions in one place and to reduce the fees I was paying. The transfer was straightforward.

As per nun #4 above, I treat it as a pension under the treaty and anticipate paying US tax only, when I begin drawdown.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Sounds good, only Hargreaves Lansdown seem to want to pay out the lump sum only. Was looking for ways to persuade them to transfer it out, keeping it as a SIPP.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

I would do the application with AJ Bell, on which you specify that the sum is being transferred from HL. AJ Bell then contact HL for the transfer.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

That is definitely worth a try, thank you.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Hi - I know you have explained before - but I can't find it! sorry - how do i elect to treat my sipp as a pension under the tax treaty?

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

Just reading this as I'm looking at my UK pensions too - so apologies for butting in to ask you an ancillary question MidAtlantic: I have 2 retirement pensions in he UK with Standard Life and Aviva that I know longer contribute too.

I've ummed and ahhed for ages and left them as they are. I looked at QROPS providers but it seemed complicated and potentially costly. Are there advantages for me in the US moving the 2 pensions to a SIPP over just leaving them where they are? If I moved them to, say AJ Bell, would the SIPP contract act as a 'wrapper' and I'd essentially leave the pensions in the same, underlying Stan Life and Aviva funds?

Thanks an apologies for the imposition in this thread.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

The advantages for me were that I could consolidate my SIPP and two relatively small personal pensions into one SIPP pot and also pay substantially less in fees.

Yes the SIPP is just a "wrapper". I liquidated all mine and had them transfer cash to AJ Bell, then re-invested in a new portfolio which was more relevant to my circumstances now. You can transfer funds direct, provided AJ Bell deal in those funds. You would need to check with them.

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

As an update to my original inquiry I am still lost here.

HL is saying that they cannot do anything with the funds as they are in my father's name. They say the only way they can pass it on to me is to sell the funds and pay out the lump to a bank account, as anything else would involve me having an account in my name with them which they won't accept to do. They also said that they will withhold income tax from the lump sum at an amount based on my tax code, or an emergency tax code if they can't get one from HMRC.

They also said that they could only pay out to a UK bank account, so lucky I have one.

I am confused about the mention in a previous reply about the Statutory Residence Test. It seems to me that UK income is taxed in the UK regardless of residence, is that not right?

As an exercise in lateral thinking is it possible to nominate a different beneficiary for a SIPP in a similar way to a Deed of Variation that the beneficiary of a will could execute?

Thanks

Re: Tax questions from US taxpayer beneficiary of UK SIPP
 

AFAIK if you are not UK Resident then you are not resident to UK tax.

I was resident in the USA for many years while receiving a pension from a previous UK employer. When I started receiving the pension I filed form HMRC 2002 so that HMRC tax was not paid, and I paid only US tax on the pension.

https://www.gov.uk/government/upload...idual_2002.pdf

I'm afraid I can't help with the SIPP question as none of my parents or my wife's parents had SIPPs when they passed away. What did happen on the death of the remaining parent was that all their affairs, including payment of the parent's outstanding taxes, were settled before the beneficiaries received anything, at which point no US taxes were due to me or my wife. (We did have a UK bank account and the monies were paid there)