Tax treatment & reporting of U.K. SIPP to IRS
 

Hi,

I am a US citizen (just naturalized from green card holder status) who is permanently resident in Chicago. I have an occupational final salary (defined benefit) pension scheme in the U.K. that has a significant Cash Equivalent Transfer Value (CETV) and I would like to transfer it to a UK SIPP without falling foul of any taxation penalties (or just taxation) by the IRS.

I think I can do this transfer from Occupation defined benefit to SIPP without the transfer become subject to US taxation in any way but would appreciate confirmation from the experts on this forum.

Additionally, I think I would then treat the SIPP as a qualified pension under Treaty Article 18, file fBAR and FATCA and possibly 8938.

Could someone comment in the robustness of my assumptions.

Also, I believe I can take a tax free distribution of up to 25% at 55 yrs old from the SIPP on a tax free basis as the IRS leaves the taxation of the pension in the U.K. to be subject to tax in the U.K. (I.e. none).

Please note I am not interested in any way in, or discussion about, QROPS .

Also if anyone know a tax advisor in Illinois working in this area please message me.

Thanks in advance

Re: Tax treatment & reporting of U.K. SIPP to IRS
 

There is some discussion about the status of a SIPP under the treaty. Some professionals say that it needs to have at least 50% employer contributions to qualify as a pension under the treaty, some say that any SIPP is a treaty pension. But, let's assume that you can do the US tax free transfer from a DB pension to a SIPP under Article 18.1.

As you are a US citizen/resident you are subject to the saving clause that the US inserts into its DTAs. The only way you'll get the 25% tax free sum is to take it out as regular income so that the payments fall under Article 17.1b......a single 25% withdrawal would not qualify.

You should file a US-Individual-2002 to claim tax treaty relief on the UK pension from HMRC.

Re: Tax treatment & reporting of U.K. SIPP to IRS
 

Thanks Nun,

I have written confirmation from the defined benefit administrator that the employer contributions exceed 50%.

I understand the position now on the savings clause and the fact that it prevents taking up to 25% tax free.

From an ongoing filing perspective what forms would be used to report the SIPP if claiming treaty exemption under Article 18? I.e where exactly and how is that reported?

Also I assume fatca, FBAR and 8938 would need to be filed?

Thanks in advance

Re: Tax treatment & reporting of U.K. SIPP to IRS
 

Thanks Nun,

I have written confirmation from the defined benefit administrator that the employer contributions exceed 50%.

I understand the position now on the savings clause and the fact that it prevents taking up to 25% tax free.

From an ongoing filing perspective what forms would be used to report the SIPP if claiming treaty exemption under Article 18? I.e where exactly and how is that reported?

Also I assume fatca, FBAR and 8938 would need to be filed?

Thanks in advance