aberdonianfromhell

I am a UK citizen returned now to UK for 3 years and was trying to transfer my 41k funds that built up during my time working in the USA. I have been charged 30% withholding tax on the full amount even though I sent in the W8BEN form to waiver this withholding tax. I was told that a new treaty came into force with the UK and its no longer possible to get a waiver on USA withholding taxes (tax treaty changed this year I was advised) for UK citizens/residents. I tried to google this and cant find anything about changes to this treaty. Does anybody here on the forum know anything about this? Is there anyway I can recover this 30% withholding tax?

I don't have any earning in the UK currently so perhaps it could be claimed against future earnings here in the UK

Would appreciate any advice

thanks

Hotscot

That sounds about right.
It's been treated as a distribution and is USA taxable if you were a US tax resident.
Can you undo the transfer?
As far as I know there's no way to transfer it into a UK scheme and maintain the tax advantaged aspect, if that's what you intend.
If it was me I'd leave it where it is to grow.

( I could be wrong and I don't enough about your situation without asking you more questions.)

aberdonianfromhell

Hi,

I am not resident in the USA and resident in the UK hence I thought the w8ben form would provide a waiver to avoid paying withholding tax in the USA and pay any taxes owned in UK. Are you able to point me to some official information on this?

Thanks

Pulaski

A withholding tax in the US is a tax credit when you prepare your annual US tax return and will be applied against any taxes payable; any excess will be refunded. In other withholding tax is withheld preemptively to ensure that Uncle Sam get's his share and you don't bu99er off overseas and stiff Uncle Sam.

Pulaski

As your 401K balance resulted from earnings in the US and your contributions were tax deductible in the US, the distribution is potentially (from the IRS's perspective) taxable in the US. As a non-resident when you complete your return you should get a refund of the tax withheld (assuming that you are no longer subject to US taxes i.e. you aren't a permanent resident or US citizen).

MidAtlantic

Is this an "early withdrawal"? ie you are under 59 ½ years of age. If so there is a penalty of 10% in addition to regular income taxes. I doubt if that 10% penalty is recoverable. However, as Pulaski has said, the regular tax will be applied against any taxes payable when you prepare your US tax return (probably a 1040NR).

You may also need to consider state tax, depending on where you lived and whether you have been able to dis-engage from their claws. Some states are notoriously difficult to escape from.

aberdonianfromhell

Hi,

I dont have earnings in the USA other than some property rental income that barely breaks even so don't pay tax in USA as such because there is no profit although I do file a return each year in Texas. So if I don't have pay any other taxes can this withholding tax be clawed back home other way?

Could it be offset against my UK tax return perhaps?

Thanks

MidAtlantic

Complete a US tax return and, if you have overpaid as a result of this withholding, this will come back as a refund.

Cook_County

If this was a lump sum distribution and you are a non-resident alien it is only taxed in the US. In terms of the rental income you are either paying US tax at 30% on gross income or - alternatively - if you made the net election are claiming expenses. You will of course also be declaring the rent to HMRC each year.

Beraider

My understanding of the US/UK Tax Treaty is that distributions from 401k plans to a UK citizen resident in the UK are taxable only by HMRC. I am not aware of any changes to the treaty. Filing of the W8BEN should prevent the withholding agent from applying any withholding at all but there are certain brokers that do not comply with the tax treaty and W8BEN filing. It may be possible to transfer the 401k to another broker that will recognize the treaty provisions.