US Tax on SIPP / JISA / UK Limited Company
#1
Just Joined
Thread Starter
Joined: Aug 2016
Posts: 8
US Tax on SIPP / JISA / UK Limited Company
Hi all,
I have been reading a few threads on US taxes that apply to UK investment vehicles. Below my understanding, for all of you to challenge and add on - please!
1 - SIPP
2 - JISA
3 - My own UK Limited Company
Opinions?
Thanks,
Ale (Moving from London to San Francisco end of September 2016)
I have been reading a few threads on US taxes that apply to UK investment vehicles. Below my understanding, for all of you to challenge and add on - please!
1 - SIPP
- From the UK-US Double Tax Treaty (attached - see articles 18, 17, 4, 5), it is clear to me that growth in UK pension schemes is not subject to US tax; US will only charge income taxes once an individual starts taking distributions;
- SIPP are exempt from FATCA; this is confirmed in several documents: attached a couple of them (see LinkLaters and Quilter Cheviot attached);
- SIPP are exempt from FBAR reporting, specifically because the individual cannot access the funds; I found this in another thread here, where someone was in exactly this situation, and posted the official reply from the IRS FBAR team. I've not found yet a definite answer to whether SIPP have to be reported on 8938;
- SIPP cannot be rolled into 401k (nor into US approved QROPS nor rollover IRAs): this is confirmed by the IRS (see IRS memorandum attached);
2 - JISA
- My UK provider (AJ Bell) is telling me that ISA and JISA are exempt from FATCA;
- As no one can access the funds before our kids are 18 (and since it's really peanuts - £1,700 each - that we have on these accounts), I would not report them on FBAR (same logic as the SIPP, as the whole underlying UK tax treatment of JISA is identical to SIPP);
3 - My own UK Limited Company
- I've been contracting here in the UK through my own Limited Company (sole shareholder and sole director); I would like to keep it open (it's currently investing company savings in UK properties); it will probably cease trading (i.e. no more consulting); therefore I assume it would be categorised as either an Active NEFF (of this specific kind: The NFFE was not a financial institution in the past five years, and is in the process of liquidating its assets, or is reorganising with the intent to continue or recommence operations in a business other than that of a financial institution) or a Passive NEFF; the company will retain all profits, and not issue dividends / salary;
- I understand I will have to file Form 5471, but what I don't understand is whether I will pay any US tax?
Opinions?
Thanks,
Ale (Moving from London to San Francisco end of September 2016)
#2
Re: US Tax on SIPP / JISA / UK Limited Company
I would be wary about not reporting. Some types of investment are considered very low risk, so they are excluded from reporting by financial institutions, but reporting is still required for the beneficial owner. My understanding is that this includes ISAs, I don't know about SIPPs. I report my defined benefit UK pensions (zero value, as precise value is unknown), but I'm not sure if that's necessary.
I just looked at your links, and none of them are concerned with the reporting required of beneficial owners. The articles from Linklaters and QC are instead about what is required from financial institutions.
I just looked at your links, and none of them are concerned with the reporting required of beneficial owners. The articles from Linklaters and QC are instead about what is required from financial institutions.
#3
Re: US Tax on SIPP / JISA / UK Limited Company
The IRS are never going to complain if you give too much information. It may hurt you if you later find out you should have been reporting.
For funded plans, the rules are very harsh: the U.S. views all foreign pension plans, including ones registered or approved by the local tax authority, as "nonqualified" for favorable U.S. taxation.
New FATCA Regulations Solve Some Issues for Pension Plans, But Other Problems Remain (International Tax Bulletin 4/12)
For funded plans, the rules are very harsh: the U.S. views all foreign pension plans, including ones registered or approved by the local tax authority, as "nonqualified" for favorable U.S. taxation.
New FATCA Regulations Solve Some Issues for Pension Plans, But Other Problems Remain (International Tax Bulletin 4/12)
#4
Re: US Tax on SIPP / JISA / UK Limited Company
In a SIPP you can control how the funds are invested....therefore you have signature authority and they qualify for FBAR reporting. The same goes for an ISA and the default is to report them both.
The tax treatment of a SIPP and and ISA is very different if you are claiming that the SIPP is a pension as defined in the treaty. The ISA does not have the pension wrapper and so is open to PFIC and immediate tax on gains.
The tax treatment of a SIPP and and ISA is very different if you are claiming that the SIPP is a pension as defined in the treaty. The ISA does not have the pension wrapper and so is open to PFIC and immediate tax on gains.
#5
BE Enthusiast
Joined: Nov 2012
Posts: 899
Re: US Tax on SIPP / JISA / UK Limited Company
Are you a US citizen or green card holder? If not, what kind of visa will you have?
The SIPP is almost certainly a foreign grantor trust; you may want to re-base assets within it before moving to the US.
The SIPP & the ISA are doubtless invested in PFICs, so you will have mandatory annual PFIC reporting plus annual foreign trust reporting.
The CFC you own is likely to generate SubPart F income.
California does not respect the tax treaty, so income within the SIPP will without question be taxable at a State level. You may therefore choose to invest in a US tax deferred annuity within the SIPP so that there is no current Federal and State taxation and no PFIC issues.
The SIPP is almost certainly a foreign grantor trust; you may want to re-base assets within it before moving to the US.
The SIPP & the ISA are doubtless invested in PFICs, so you will have mandatory annual PFIC reporting plus annual foreign trust reporting.
The CFC you own is likely to generate SubPart F income.
California does not respect the tax treaty, so income within the SIPP will without question be taxable at a State level. You may therefore choose to invest in a US tax deferred annuity within the SIPP so that there is no current Federal and State taxation and no PFIC issues.
#6
Re: US Tax on SIPP / JISA / UK Limited Company
I think this is an area where you need the advice of a suitably qualified tax advisor in the area you are going to move to, different states, different rules.
#7
Re: US Tax on SIPP / JISA / UK Limited Company
California does not respect the tax treaty, so income within the SIPP will without question be taxable at a State level. You may therefore choose to invest in a US tax deferred annuity within the SIPP so that there is no current Federal and State taxation and no PFIC issues.
Last edited by nun; Aug 30th 2016 at 11:49 am.
#8
Just Joined
Thread Starter
Joined: Aug 2016
Posts: 8
Re: US Tax on SIPP / JISA / UK Limited Company
Thank you all!
@Owen778: thanks! I see you're reporting your UK pension scheme; is there a way of indicating this is a "Qualified Pension Scheme" in the tax return forms?
@mrken30: sure, better to over-inform IRS; thanks for the link; however, the conclusion on "non-qualified" is disputable for the UK (and only for the UK); from IRS Memorandum: "The Department of Treasury’s Technical Explanation of the [UK] Treaty explains that under Article 18(1), the taxpayer’s country of residence may not tax earnings and accretions of a pension scheme established in the other country until such amounts are distributed to the taxpayer"; seems very clear to me...and while I can find a lot of tax advisors wishing to discuss the topic of foreign grantor trust (and charge for it), all I can find officially from the IRS and UK pension plans info for US Tax Residents is consistent with the explanation above. May I ask you what you personally do?
@nun: agree re ISA; re SIPP: I see your point re FBAR reporting; is my understanding correct that FBAR is about disclosure, not taxation, and that instead form 8938 is used for taxation? If so, is there a way of indicating on the form that the SIPP is a qualified pension according to the treaty?
@Cook_County: L1-A, will defer and be taxed as resident alien; thanks re ISA and CFC! Re SIPP being a Foreign Grantor Trust, while this could be the case for all other Countries (depending on how the plan is legally structured), the UK-US Treaty is very clear on this, and never makes a distinction; see my reply above to @mrken30. May I ask you what you personally do?
@nun:exactly, but how do I "use the treaty to defer tax on gains"? Something that I do on my 8938?
@mikelincs: anyone you'd suggest in San Francisco? I have one of the big consulting company supporting me with tax return in both UK and US, but I'm not getting answers...
@Owen778: thanks! I see you're reporting your UK pension scheme; is there a way of indicating this is a "Qualified Pension Scheme" in the tax return forms?
@mrken30: sure, better to over-inform IRS; thanks for the link; however, the conclusion on "non-qualified" is disputable for the UK (and only for the UK); from IRS Memorandum: "The Department of Treasury’s Technical Explanation of the [UK] Treaty explains that under Article 18(1), the taxpayer’s country of residence may not tax earnings and accretions of a pension scheme established in the other country until such amounts are distributed to the taxpayer"; seems very clear to me...and while I can find a lot of tax advisors wishing to discuss the topic of foreign grantor trust (and charge for it), all I can find officially from the IRS and UK pension plans info for US Tax Residents is consistent with the explanation above. May I ask you what you personally do?
@nun: agree re ISA; re SIPP: I see your point re FBAR reporting; is my understanding correct that FBAR is about disclosure, not taxation, and that instead form 8938 is used for taxation? If so, is there a way of indicating on the form that the SIPP is a qualified pension according to the treaty?
@Cook_County: L1-A, will defer and be taxed as resident alien; thanks re ISA and CFC! Re SIPP being a Foreign Grantor Trust, while this could be the case for all other Countries (depending on how the plan is legally structured), the UK-US Treaty is very clear on this, and never makes a distinction; see my reply above to @mrken30. May I ask you what you personally do?
@nun:exactly, but how do I "use the treaty to defer tax on gains"? Something that I do on my 8938?
@mikelincs: anyone you'd suggest in San Francisco? I have one of the big consulting company supporting me with tax return in both UK and US, but I'm not getting answers...
#9
Re: US Tax on SIPP / JISA / UK Limited Company
It's not clear to me why this is something you think you need to do. The FBAR and FATCA forms are for reporting account information only. They are separate to the main tax return (1040 and lots of other forms), which is for reporting actual income. If you don't receive taxable income from an account, then you don't report it on the main tax return.
#10
Just Joined
Thread Starter
Joined: Aug 2016
Posts: 8
Re: US Tax on SIPP / JISA / UK Limited Company
My main question re SIPP is whether the value increase of the pension is taxable as income.
My assumption is that it is not, as it's a qualified pension scheme according to the UK<>US Treaty; hence I'm not clear whether it doesn't need to be reported, or whether it has to be reported but categorised as "qualified pension scheme".
My assumption is that it is not, as it's a qualified pension scheme according to the UK<>US Treaty; hence I'm not clear whether it doesn't need to be reported, or whether it has to be reported but categorised as "qualified pension scheme".
#11
Re: US Tax on SIPP / JISA / UK Limited Company
My main question re SIPP is whether the value increase of the pension is taxable as income.
My assumption is that it is not, as it's a qualified pension scheme according to the UK<>US Treaty; hence I'm not clear whether it doesn't need to be reported, or whether it has to be reported but categorised as "qualified pension scheme".
My assumption is that it is not, as it's a qualified pension scheme according to the UK<>US Treaty; hence I'm not clear whether it doesn't need to be reported, or whether it has to be reported but categorised as "qualified pension scheme".
#12
Re: US Tax on SIPP / JISA / UK Limited Company
Thank you all!
@mrken30: sure, better to over-inform IRS; thanks for the link; however, the conclusion on "non-qualified" is disputable for the UK (and only for the UK); from IRS Memorandum: "The Department of Treasury’s Technical Explanation of the [UK] Treaty explains that under Article 18(1), the taxpayer’s country of residence may not tax earnings and accretions of a pension scheme established in the other country until such amounts are distributed to the taxpayer"; seems very clear to me...and while I can find a lot of tax advisors wishing to discuss the topic of foreign grantor trust (and charge for it), all I can find officially from the IRS and UK pension plans info for US Tax Residents is consistent with the explanation above. May I ask you what you personally do?
@mrken30: sure, better to over-inform IRS; thanks for the link; however, the conclusion on "non-qualified" is disputable for the UK (and only for the UK); from IRS Memorandum: "The Department of Treasury’s Technical Explanation of the [UK] Treaty explains that under Article 18(1), the taxpayer’s country of residence may not tax earnings and accretions of a pension scheme established in the other country until such amounts are distributed to the taxpayer"; seems very clear to me...and while I can find a lot of tax advisors wishing to discuss the topic of foreign grantor trust (and charge for it), all I can find officially from the IRS and UK pension plans info for US Tax Residents is consistent with the explanation above. May I ask you what you personally do?
#13
Just Joined
Thread Starter
Joined: Aug 2016
Posts: 8
Re: US Tax on SIPP / JISA / UK Limited Company
Thanks @mrkn30! Exactly the info I was looking for. Do you also report on 8938 (with no tax items)?
#14
BE Enthusiast
Joined: Nov 2012
Posts: 899
Re: US Tax on SIPP / JISA / UK Limited Company
But they are subject to both CA tax and the NIIT. They would only not be taxable in the US if you had elected to use the treaty.
Most individuals owning SIPPS who are US resident would file 3520s and 3520-As each year because the penalties for not filing are too large to contemplate. The treaty has zero effect on such informational returns.
Most individuals owning SIPPS who are US resident would file 3520s and 3520-As each year because the penalties for not filing are too large to contemplate. The treaty has zero effect on such informational returns.
#15
Re: US Tax on SIPP / JISA / UK Limited Company
But they are subject to both CA tax and the NIIT. They would only not be taxable in the US if you had elected to use the treaty.
Most individuals owning SIPPS who are US resident would file 3520s and 3520-As each year because the penalties for not filing are too large to contemplate. The treaty has zero effect on such informational returns.
Most individuals owning SIPPS who are US resident would file 3520s and 3520-As each year because the penalties for not filing are too large to contemplate. The treaty has zero effect on such informational returns.
Last edited by mrken30; Aug 30th 2016 at 2:46 pm.