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US Tax on SIPP / JISA / UK Limited Company

US Tax on SIPP / JISA / UK Limited Company

Old Aug 30th 2016, 3:41 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.
Thanks! Could you help me in how do you "elect to use the treaty" - which is exactly what I want to do?
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Old Aug 30th 2016, 3:47 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by alessandro View Post
Thanks @mrkn30! Exactly the info I was looking for. Do you also report on 8938 (with no tax items)?
Yes
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Old Aug 30th 2016, 5:30 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by alessandro View Post

@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?
Biothe the FBAR and the 8938 are purely informational....you work out the tax on other forms.

@nun:exactly, but how do I "use the treaty to defer tax on gains"? Something that I do on my 8938?
If you don't have excess FTC that will cover the tax on the gains and/or you have investments in the SIPP that you want to put a pension wrapper around then you will probably be better off electing the treaty treatment of the SIPP as a pension. To do this you can file 8833 forms and claim tax deferral on yours and your employers contributions and on any gains by using Article 18. However, claiming a treaty exemption on income from a pension does not need to be claimed on 8866 so interpret that as you will.

Bottomline is that if you use the treaty you won't include the contributions or the gains in the pension funds on your 1040......just leave them off when calculating your taxable income.
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Old Aug 30th 2016, 6:29 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

I have a few associated questions - if, as a US resident and UK citizen, I take a capital distribution from a personal UK Pension Plan
i) is the first 25% taxable in the UK,
ii) is anything above the first 25% taxable in the UK as income, and
iii) does the US tax the total amount withdrawn as income and handle it under the Double Taxation treaty ?

Thanks
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Old Aug 30th 2016, 7:59 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by reltub View Post
I have a few associated questions - if, as a US resident and UK citizen, I take a capital distribution from a personal UK Pension Plan
i) is the first 25% taxable in the UK,
ii) is anything above the first 25% taxable in the UK as income, and
iii) does the US tax the total amount withdrawn as income and handle it under the Double Taxation treaty ?

Thanks
You'll want to start familiarising yourself with the concepts of flexi-access pension drawdown versus an uncrystallised funds pension lump sum to decide what it is you are taking.
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Old Aug 30th 2016, 8:03 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by reltub View Post
I have a few associated questions - if, as a US resident and UK citizen, I take a capital distribution from a personal UK Pension Plan
i) is the first 25% taxable in the UK,
ii) is anything above the first 25% taxable in the UK as income, and
iii) does the US tax the total amount withdrawn as income and handle it under the Double Taxation treaty ?

Thanks
Distributions from a pension are treated as income so be careful using terms like capital. I will assume that you take a number of distributions from the pension so they can be seen as periodic income.

If you are a US tax resident then the UK pension income is not taxable in the UK so the answers to your questions are.


i) No
ii) No
iii) Yes the US will tax the income, but as long as it is treated as a periodic income payments it will be tax free to the extent that it would have been tax free in the UK.
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Old Aug 30th 2016, 8:19 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

So do the IRS treat the 25% as a roth 401k and the other 75% as a traditional 401k?
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Old Aug 30th 2016, 8:41 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Thanks for the quick response Cook County and Nun,

I should have clarified that I am think of either taking 25% now as a lump sum and leaving the rest in a UK investment vehicle, or taking a 100% withdrawal now and investing it here in the US.

I believe that this is described as an uncrystallised funds pension lump sum and from Nun's comment I take that I would be liable for US tax although the comment ""it will be tax free to the extent that it would have been tax free in the UK." isnt clear...does that mean that the initial 25% lump sum is tax free in the US, and any subsequent payment would be tax free up to my UK personal tax allowance ( 11,00 pounds at present) ?

Last edited by reltub; Aug 30th 2016 at 8:43 pm.
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Old Aug 30th 2016, 8:50 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by reltub View Post
Thanks for the quick response Cook County and Nun,

I should have clarified that I am think of either taking 25% now as a lump sum and leaving the rest in a UK investment vehicle, or taking a 100% withdrawal now and investing it here in the US.

I believe that this is described as an uncrystallised funds pension lump sum and from Nun's comment I take that I would be liable for US tax although the comment ""it will be tax free to the extent that it would have been tax free in the UK." isnt clear...does that mean that the initial 25% lump sum is tax free in the US, and any subsequent payment would be tax free up to my UK personal tax allowance ( 11,00 pounds at present) ?
If you take the entire amount in the pension within a single year it will all be taxable as income, you lose the 25% tax. If you take the payments out over a number of years so that 25% of each payment is the UK tax free amount then that will also be tax free in the US.
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Old Aug 30th 2016, 8:53 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by mrken30 View Post
So do the IRS treat the 25% as a roth 401k and the other 75% as a traditional 401k?
No ROTH 401k and 401ks are qualified US accounts and only accounts set up in the US and meeting the specific rules will be treated as such.

Any UK pension distribution is treated as foreign pension income and taxed according to IRS regulations that might be modified by the treaty. Article 17.1b is one of the few articles that actually modifies IRS rules.
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Old Aug 30th 2016, 8:54 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by nun View Post
To do this you can file 8833 forms and claim tax deferral on yours and your employers contributions and on any gains by using Article 18. However, claiming a treaty exemption on income from a pension does not need to be claimed on 8866 so interpret that as you will.

Bottomline is that if you use the treaty you won't include the contributions or the gains in the pension funds on your 1040......just leave them off when calculating your taxable income.
Exactly what I was looking for! Thanks @nun!
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Old Aug 30th 2016, 8:57 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

This has cleared up some of my questions regarding HMRC. Not sure how up to date it is.

https://www.oldmutualwealth.co.uk/gl...ithdrawals.pdf
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Old Aug 30th 2016, 9:23 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Nun - is there a minimum number of years that the payments need to be distributed over in order to maintain the 25% tax free element in the eyes of the IRS ?
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Old Aug 30th 2016, 9:52 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by reltub View Post
Nun - is there a minimum number of years that the payments need to be distributed over in order to maintain the 25% tax free element in the eyes of the IRS ?
It has to be longer than one year. The IRS says:

"Generally, periodic payments are pension or annuity payments made for more than 1 year that are not eligible rollover distributions."
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Old Aug 30th 2016, 9:54 pm
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Default Re: US Tax on SIPP / JISA / UK Limited Company

Originally Posted by nun View Post
It has to be longer than one year. The IRS says:

"Generally, periodic payments are pension or annuity payments made for more than 1 year that are not eligible rollover distributions."
Does that just mean crossing over 2 tax years, I wonder? Could you get payments in December and January?
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