formfill1

For a UK citizen, who has returned to the UK, who taxes his IRA when distribuions are taken, the US or the UK?
Or is it that he has to pay both, and claim back from one of them?

theOAP

Beraider

See the US-UK Double Taxation Treaty, article 17 cover this per below:
ARTICLE 17 Pensions, Social Security, Annuities, Alimony, and Child Support 1. a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State. b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in the other Contracting State that would be exempt from taxation in that other State if the beneficial owner were a resident thereof shall be exempt from taxation in the first-mentioned State. 2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State. 3. Notwithstanding the provisions of paragraph 1 of this Article, payments made by a Contracting State under the provisions of the social security or similar legislation of that State to a resident of the other Contracting State shall be taxable only in that other State. 4. Any annuity derived and beneficially owned by an individual (“the annuitant”) who is a resident of a Contracting State shall be taxable only in that State. The term “annuity” as used in this paragraph means a stated sum paid periodically at stated times during the life of the annuitant, or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration (other than in return for services rendered). 5. Periodic payments, made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support, including payments for the support of a child, paid by a resident of a Contracting State to a resident of the other Contracting State, shall be exempt from tax in both Contracting States, except that, if the payer is entitled to relief from tax for such payments in the first-mentioned State, such payments shall be taxable only in the other State.

theOAP

Unfortunately, Article 17, paragraph 1a, 2, and 4 are covered by the saving clause of Article 1(4). Draw down distributions are taxable in both countries.

Reinvested earnings during the accumulation phase prior to commencement of draw down are not taxed in the UK.

Beraider

From what I understand the savings clause applies to US citizens or US residents only. Therefore a UK citizen resident in the UK is not subject to that clause.

theOAP

You are correct if the individual is not a dual US/UK citizen or a continuing green card holder which has not been properly revoked according to IRS rules (we don't know this at present for the OP).

Simply having UK citizenship and UK residence is not an automatic pass if US ties remain.

If the individual is only a UK citizen with no US ties, a W8BEN must be filed with the provider. Sometimes, as found from experiences of others, the provider of the IRA will nonetheless (and contrary to the Treaty) continue to withhold US tax. It is then up to the individual to contest the US taxation with the provider or file a 1040NR to reclaim the taxation. If the individual is a UK only citizen with no US ties, hope for a knowledgeable provider.

The yet to be determined situation is "UK citizen only with no US ties". Apologies for being pedantic, but 'UK citizen and UK resident' has led to misunderstandings before.

formfill1

Thanks for the replies.
I believe I don't have any ties with the US (unless you consider financial ties,eg. having IRAs, mutual funds).
So it seems that the information in post 3 is what I need to look at.
However, after having read this a number of times, I can't get past the legalese.
Do you know of any documents that simplify this, so that I could start to get an understanding of the article?

theOAP

Thanks for the update.

If you are not a US citizen, not US resident, and if an LPR have filed form 8854, then you should only be taxed by your country of residence (UK). The simplest official explanation is from the Technical Explanation of the US/UK Treaty. If you are not taking a lump sum, then only Article 17, paragraph 1 applies. US Social Security payments are covered by paragraph 3 if relevant.

https://www.treasury.gov/resource-ce...ts/teus-uk.pdf
page 63

You mention mutual funds. If you have US mutual funds it may ease UK reporting if the funds are also HMRC reporting funds.

formfill1

Thanks very much for this, it is extremely helpful.
So, by paragraph 1a, I should only pay tax in the UK.
However, paragraph 2 may come into play as the Company holding my 401k/IRA has frozen the account because I am not resident in the UK.
I have been treading lightly with them as I don't want the account to be closed.
Do you know under these circumstances if I will be able to take periodic distributions, or will I be forced to take a lump sum?

formfill1

There was a typo in my last post - it should have read:

theOAP

It's not unheard of for the account to be frozen if you aren't resident in the US. The account should still grow as a pension investment even if there are no further contributions by yourself. It depends on the provider.

There is no way to tell. It's up to the provider, and different providers have different rules which are not always consistent.

formfill1

Is it possible to find out the rules for a particular provider (mine is Fidelity), or can a particular provider be inconsistent in applying the rules?

theOAP

I believe the only answer would come from Fidelity.

The following link concerns someone who was both on this site and the UK Yankee site - "dunroving". You may want to do additional searches on both sites for other threads concerning Fidelity.

https://talk.uk-yankee.com/index.php?topic=88547.0

formfill1

Thanks - again this is very helpful.
There seems to be a wealth of information there, and quite a lot of ill will against some US financial institutions.
I've read the first couple of pages, and noted a couple of interesting items:
1 One poster suggests that it may be beneficial to take out the entire sum from an IRA (I assumed otherwise due to graduated tax rates)
2 Another poster points to a Schwab office in London (would a transfer to a Schwab IRA reduce the problems UK NRA's are experiencing?)

I'll do a search through this other site as you suggested.