Why can't you get the 30% withholding back? You simply file a 1040NR and use the 1099 that Fidelity will issue to show the tax withheld. As an NRA you use the treaty to show zero US tax due and get a full refund from the IRS.
So here's what I'd do.
1) Make sure you file a W-8BEN with Fidelity and get Fidelity to confirm that they have it.
2) If Fidelity withhold 30% write to tell them you think there should be 0% withholding citing Article 17.1 of the treaty and how it modifies the IRS code.
3) Do an HMRC self assessment and pay tax on 90% of the gross distribution (ie before withholding).
4) File a 1040NR and claim back the withholding tax from the IRS......this is money that you've already declared for self assessment and paid tax on to HMRC so you are now done.....until next year when you can do it all over again.
Thank you -you are completely correct of course! I think I had realised this previously but my head was spinning so much by the end of yesterday that I temporarily blanked on the fact that you can invoke the tax treaty in the 1040NR!
Your suggested strategy is good, and is certainly the most sensible one to pursue even though it is going to involve massive inevitable delays and a period where I have (possibly) paid double tax on a single sum, without 100% certainty of a full refund from the IRS.
However all my reading around this has convinced me that the correct and uncontroversial position Fidelity should adopt under the circumstances of a UK resident NRA making a partial distribution of a Traditional IRA is to apply the Treaty mandated 0% withholding.
It's not just the IRS definition of a lump sum being a complete distribution of an entire account in a single year, or the clear indication from table 1 in IRS pub. 515 that pensions and annuities are subject to 0% withholding under the treaty 17.1, but US IRA providers also say this.
The fullest account outside an IRS publication that I have found is in a 2015 tax guide from broker and IRA provider Pershing LLC. https://www.pershing.com/_global-assets/pdf/tax-guide-2015.pdf
They seem used to dealing with non-residents, they give an example of a completed 1042S form, they mention on pages 72 -75 nearly all the possible circumstances of IRA distributions overseas and how they would treat them ( non-resident US person with W9 filed,non resident US person no W9 on file, non US person NRA with W8BEN on file, non US person NRA without W8BEN on file, and so on).
They clearly state that IRA distributions are income coded as "pensions and annuities " on the 1042S form (code 14 in 2015), and give a helpful grid of tax treaty countries that have treaty based 0% and 15% withholding on pensions and annuities, that they will apply to the distribution with a correctly filed W8BEN.
So it seems to me the 0% withholding should be routine, rather than esoteric, and Fidelity have no good reason to ignore it.
So the first thing I will do next is contact Fidelity directly, with my account details, describe the distribution I plan to make, and the forms I will file, and the treaty paragraph I will cite, and ask them directly if they will apply 0%, in order to decide what my next steps should be. Thanks again for the help.