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US Tax on SIPP / JISA / UK Limited Company

US Tax on SIPP / JISA / UK Limited Company

Old Aug 29th 2016, 5:03 pm
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Default 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
  • 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)
Attached Files
File Type: pdf
uktreaty.pdf (274.1 KB, 283 views)
File Type: pdf
am2008009.pdf (70.6 KB, 270 views)
File Type: pdf
File Type: pdf
FAQ-FATCA-FINAL.pdf (61.1 KB, 251 views)
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Old Aug 29th 2016, 6:14 pm
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Default 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.
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Old Aug 29th 2016, 10:02 pm
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Default 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)
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Old Aug 30th 2016, 12:20 am
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Default 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.
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Old Aug 30th 2016, 8:16 am
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Default 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.
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Old Aug 30th 2016, 9:10 am
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Default 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.
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Old Aug 30th 2016, 11:15 am
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by Cook_County View Post


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.
Are there SIPPs that offer US deferred annuities? maybe there are specialized companies that have set this up....but I imagine the fees will be large. I'd rather see the the SIPP invested in either US mutual funds that are UK reporting or some individual stocks. If you have the excess FTC or live in CA then treat it like a foreign grantor trust, otherwise use the treaty to defer tax on gains.....The FTC route assumes you won't be subject to UK tax when you make the withdrawals ie you'll be in the US.

Last edited by nun; Aug 30th 2016 at 11:49 am.
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Old Aug 30th 2016, 12:23 pm
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Default 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...
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Old Aug 30th 2016, 12:54 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by alessandro View Post
@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?
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.
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Old Aug 30th 2016, 1:01 pm
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Default 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".
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Old Aug 30th 2016, 1:05 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by alessandro View Post
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".
The dual tax treaty is entirely separate to whether you have to report something as a foreign account for FBAR/8938 purposes. One is about reporting income, the other about reporting the accounts themselves and their total value.
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Old Aug 30th 2016, 1:24 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by alessandro View Post
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?

I only report mine in the FBAR as the gains are not taxable
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Old Aug 30th 2016, 1:36 pm
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Default 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)?
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Old Aug 30th 2016, 2:35 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by mrken30 View Post
I only report mine in the FBAR as the gains are not taxable
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.
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Old Aug 30th 2016, 2:38 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by Cook_County View Post
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.
I don't own SIPPS, I own a insured contract based pension plan not trust based.I thought 3520 were for trusts only.

Last edited by mrken30; Aug 30th 2016 at 2:46 pm.
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