Author Topic: Fidelity IRA distribution to UK-periodic No-no!  (Read 4490 times)

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Offline parklane

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #45 on: November 10, 2016, 09:19:58 PM »
I may be wrong in the following, but if you think I am, please quote chapter and verse from the relevant authorities if you have another interpretation since I want to understand why and how any tax due is calculated, credited or rendered non-taxable in some way.  I am considering the position of a UK resident as defined by the Treaty, who may or may not be a US citizen.  US SS and UK State Pension are not included in this discussion - they are clearly taxable only in the State of residence.

As I understand it, an IRA is specifically included under the definition of pension scheme for the purposes of the DTA, so it is taxed to UK residents, as defined by the treaty, under Article 17(1) of the UK-US treaty.  An IRA is US sourced.  Other pensions may be UK or US sourced.  In the table in PUB 901 US Tax Treaties, the witholding rate for pensions is 0%, and the column headed Pensions does not specify the source of the pensions, unlike interest and dividends, so I conclude that both US and UK based pensions are taxed the same way.  Should it actually specify US pensions ?  Article 17(1) says pensions are taxed by the UK when received by a UK resident.  If that UK resident is a US citizen as well, then since Article 17(1) is not exempt from the savings clause, they can be taxed by the IRS as well.  The IRS still expect it to appear on the 1040 of a US citizen and will tax it accordingly, but the US will allow a credit against US tax for tax paid to the UK.  I believe this is done using Form 1116 (I have yet to figure out if it goes under the general category income or resourced by treaty income - maybe somebody can tell me).  Is the rather obtuse re-sourcing procedure of Article 24 (as applied to dividends in the example in the Technical Explanation to the Treaty) applied to pensions, but using the 0% witholding rate ?

I have read on several accountancy firm websites that the US can, and will tax a regular UK source employment pension received by a US citizen, which confirms my analysis.  I have also read a number of blogs that say a UK pension is only taxable in the UK (which is not the same as saying that a tax credit reduces US tax to zero), so I would like to resolve the conflict with some hard evidence.   

Offline nun

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #46 on: November 10, 2016, 09:43:49 PM »
I am considering the position of a UK resident as defined by the Treaty, who may or may not be a US citizen.  US SS and UK State Pension are not included in this discussion - they are clearly taxable only in the State of residence.

Actually UK state pension when paid to a US citizen who is a UK resident is taxable in both the US and the UK according to the treaty language because it is not a cross border payment.

Quote
As I understand it, an IRA is specifically included under the definition of pension scheme for the purposes of the DTA, so it is taxed to UK residents, as defined by the treaty, under Article 17(1) of the UK-US treaty.  An IRA is US sourced.  Other pensions may be UK or US sourced.  In the table in PUB 901 US Tax Treaties, the witholding rate for pensions is 0%, and the column headed Pensions does not specify the source of the pensions, unlike interest and dividends, so I conclude that both US and UK based pensions are taxed the same way.  Should it actually specify US pensions ?  Article 17(1) says pensions are taxed by the UK when received by a UK resident.  If that UK resident is a US citizen as well, then since Article 17(1) is not exempt from the savings clause, they can be taxed by the IRS as well.  The IRS still expect it to appear on the 1040 of a US citizen and will tax it accordingly, but the US will allow a credit against US tax for tax paid to the UK.  I believe this is done using Form 1116 (I have yet to figure out if it goes under the general category income or resourced by treaty income - maybe somebody can tell me).  Is the rather obtuse re-sourcing procedure of Article 24 (as applied to dividends in the example in the Technical Explanation to the Treaty) applied to pensions, but using the 0% witholding rate ?

I have read on several accountancy firm websites that the US can, and will tax a regular UK source employment pension received by a US citizen, which confirms my analysis.  I have also read a number of blogs that say a UK pension is only taxable in the UK (which is not the same as saying that a tax credit reduces US tax to zero), so I would like to resolve the conflict with some hard evidence.

If you are a US citizen living in the UK then you pay the UK the tax on your pension income an take a FTC on your US tax return......you would resource the US pension income to the UK so it appears as foreign.

If you are a NRA living in the UK with a US pension then for income other than a lump sum distribution there is no US tax due at all. There should be 0% withholding, but if tax is withheld it can be all claimed back on a 1040NR

Offline parklane

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #47 on: November 11, 2016, 11:30:45 AM »
Actually UK state pension when paid to a US citizen who is a UK resident is taxable in both the US and the UK according to the treaty language because it is not a cross border payment.
Thanks for your response, but I must take issue with this first statement.  Cross border payments have nothing to do with it (or can you please provide a reference to support your conclusion).  The Treaty clearly says in Article 17(3) "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."  The application of the savings clause of Article 1(4) to Article 17(3) is excepted by Article 1(5)a, so US Social Security and UK State Pension are taxable ony by the state of residence.  Note that the savings clause, Article 1(4) allows the US to tax its citizens and residents.  If you are not a citizen or a resident of the US, then it does not apply, so Article 17(3) can then be taken at face value.  So, for example, a UK citizen resident in the UK can ignore the savings clause.

If you are a US citizen living in the UK then you pay the UK the tax on your pension income an take a FTC on your US tax return......you would resource the US pension income to the UK so it appears as foreign.

This is much as I thought, but the precise mechanisms involved are not clear to me.  Is the pension in question included in the amount on line 16a of the 1040.  If so, it becomes taxable unless it is then deducted from the taxable amount on line 16b.  I think the tax credit is then calculated using the convoluted antics of Form 1116, and you suggest classifying the pension as resourced income by ticking box d rather than the other possiblity of box b, general category income.  Logic suggests that you could not take a credit for foreign tax on an item that does not apear on the US 1040 in the first place, i.e., what US tax are you taking the credit against ?  This is all done through the convoluted antics of Form 1116, but I would like some more opinions on this.
PL

Offline parklane

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #48 on: November 11, 2016, 11:34:57 AM »
I think we are way off the original toic.  I will copy the last few posts to a new thread accordingly.

Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #49 on: January 18, 2017, 07:15:29 PM »
I am UK citizen. Moved back to London after 27 years in US. Gave up the green card last year. I have no problem logging on to my Fidelity account (Fidelity have our UK address on file). A few years ago I had converted my IRA to Roth. I even took monthly distributions for a couple of years ( till 2014) while in the US. Now we are back in UK, I wanted to resume periodic withdrawals, and have Fidelity deposit the payments in a Cash Management account we have with them. Cannot apply online..but was advised to complete a form. I did. When I followed up last week, I was told it is not possible to make periodic withdrawals because we have an overseas address. Spent a long time on the phone, and the person at the other end decided to investigate and call me back. He was very helpful. He had a question about Federal  tax with-holding. I explained that with Roth there is no tax liability. He agreed to process the request, and indicated that first payment will be made mid-Feb. I even saw an entry in the Account Features . Can't wait!
Yesterday I received a letter from another person asking me to phone to give more information. When I phoned, the person told me they cannot process my request.. because.. you guessed it! Could not get him to explain why.  I am hoping that Fidelity do not talk to each other..and that the processed request will go through. I will find out mid- February. I am disappointed. I have always found Fidelity fairly flexible.
I looked up the regulations regarding Automatic Withdrawal . One sentence explains

"Because of unique withholding requirements, automatic withdrawals is not available to non-residents"
http://personal.fidelity.com/retirement/pdf/User-Agreement-041909.pdf

That should not impact IRA Roth withdrawal.. in my opinion!

Offline guya

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #50 on: January 18, 2017, 08:56:19 PM »
I am UK citizen. Moved back to London after 27 years in US. Gave up the green card last year. I have no problem logging on to my Fidelity account (Fidelity have our UK address on file). A few years ago I had converted my IRA to Roth. I even took monthly distributions for a couple of years ( till 2014) while in the US. Now we are back in UK, I wanted to resume periodic withdrawals, and have Fidelity deposit the payments in a Cash Management account we have with them. Cannot apply online..but was advised to complete a form. I did. When I followed up last week, I was told it is not possible to make periodic withdrawals because we have an overseas address. Spent a long time on the phone, and the person at the other end decided to investigate and call me back. He was very helpful. He had a question about Federal  tax with-holding. I explained that with Roth there is no tax liability. He agreed to process the request, and indicated that first payment will be made mid-Feb. I even saw an entry in the Account Features . Can't wait!
Yesterday I received a letter from another person asking me to phone to give more information. When I phoned, the person told me they cannot process my request.. because.. you guessed it! Could not get him to explain why.  I am hoping that Fidelity do not talk to each other..and that the processed request will go through. I will find out mid- February. I am disappointed. I have always found Fidelity fairly flexible.
I looked up the regulations regarding Automatic Withdrawal . One sentence explains

"Because of unique withholding requirements, automatic withdrawals is not available to non-residents"
http://personal.fidelity.com/retirement/pdf/User-Agreement-041909.pdf

That should not impact IRA Roth withdrawal.. in my opinion!
Are you a covered expatriate? This could fundamentally change the US tax treatment.

Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #51 on: January 19, 2017, 09:21:36 AM »
Thanks Guya
No, I am not a covered expatriate. I also made sure that when we expatriated everything was taken care of. Completed all the IRS/Treasury forms, Paid all US taxes etc
Fidelity did not raise that question...I wish they would. At least one can then reason with them. They just say "not allowed". If my request is not processed by mid-February, I will follow up and  raise the tax question. May be they just need to be more aware of the specifics, and treat these issues case by case.


Offline nun

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #52 on: January 19, 2017, 02:06:59 PM »
Have you filed a W-8BEN with Fidelity?

Have you asked them how you are supposed to access your money. You could take a lump sum payment as there would obviously be no tax on that from a ROTH.

I think you have run into an Fidelity internal "CYA" policy.

Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #53 on: January 19, 2017, 05:14:53 PM »
Yes, I have a W-8BEN filed with Fidelity. They did say I can take lump sum payments whenever I want. Just phone them or request it on line. Neither is convenient in the long run. I have a Fidelity Annuity which is paid monthly without any problem.You are correct about "CYA" policy!

Offline feynman

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #54 on: January 19, 2017, 08:06:08 PM »
I have been following these threads with interest but one thing puzzles me. Much effort is expended on trying to guess how HMRC will interpret the US/UK tax treaty: lump sum versus periodic payment ;  Article 17 versus article 19, etc etc.

Rather than speculate, is it not possible to find case histories?

Alternatively, has anyone tried putting these questions directly to HMRC  ?


Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #55 on: January 20, 2017, 10:20:59 AM »
I have not seen any case histories re HMRC position/ interpretation. So, in mid-Dec 2016, I wrote to HMRC that I wanted to understand the rules that apply to withdrawals fro IRA-Roth. I explained to HMRC that withdrawals from Roth are tax exempt in the USA, since tax was paid when we converted from Traditional to Roth. I also asked if my understanding is correct that withdrawals are also tax free in UK, based on the UK/US DTA ( articles 17 and 18).
A month later I got a reply from HMRC.: " guidance regarding taxation of foreign pensions is complex". For HMRC to supply a response, they requested the following information:
1- will I be taking initial lump sum? If so, what percentage , and can I confirm that I will receive monthly payments thereafter. 2-will I be making  regular withdrawals from the pension fund? 3-confirm my nationality. 4-supply documentary evidence, if held.
Below is the response I sent:
1- I will not be taking an initial lump sum. 2- I will be making monthly withdrawals totalling a certain percentage a year. The annual percentage may change in the future should our circumstances change. 3- UK citizen 4- Documents: Date account was established via conversion from IRA to Roth ( and tax documents from Fidelity and IRS to show that tax was paid). I also attached documents to show that I had monthly withdrawals in USA ( till 2014), which I included in my IRS filing. It clearly shows that Roth income was not taxable.
My response was sent on 17 Jan 2017. So it may be a while before I get HMRC response. Will certainly post the response in this site.





Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #56 on: March 07, 2017, 07:37:38 PM »
This may answer the question Feynman raised.
I received a phone call and letter from HMRC. They confirm that withdrawals/distributions from IRA-Roth are not taxable in the U.K. The form ( lump sum or periodic) and the amounts of withdrawals make no difference. As long as they are not taxable in the USA, they are not taxable in UK. And best of all, one does not have to include that income in the (Self Assessment) tax return.

Now, back to Fidelity Periodic distribution (Automatic Withdrawals) from Roth account. After nearly three months and several phone calls with Fidelity, the answer is NO. They seem to apply a blanket restriction on automatic withdrawals for retirements accounts for non US persons not resident in USA. Fidelity have proved to be very inflexible in this instance.
Withdrawals can still be arranged on the phone ( via a trader...this can be expensive @$29.99 if one has several funds) or online.
Will write to Fidelity and express my utter disappointment...but that will not change things!.



Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #57 on: April 25, 2017, 09:00:21 AM »
Does anyone have experience with other companies ( Vanguard, Schwab etc..) regarding setting up Automatic (periodic) Withdrawal plan from Roth account for persons who reside outside USA?
Fidelity does not allow it. Fidelity's explanation is that " there is a system limitation regarding the tax reporting of distributions taken from a retirement account for customers residing internationally. These redemptions must be processed manually , even if they are not taxable ". That is, one has to phone them every time one wants a distribution.

Offline Hass

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #58 on: May 15, 2017, 10:23:58 AM »
A question to "dunroving". Did you ever get the letter from TIAA-CREFF?

Per you post in October 2016..
"It's coincidental that I got an alert about your post as I had just got off the phone (2 hours) with TIAA-CREF. My efforts are ongoing, but TIAA-CREF still don't know what they are doing - 4 weeks ago I was told they had checked my W8BEN, including the detail about Article 19(b) and "Good news, we can confirm you are subject to zero withholding. We will send you a confirmation letter within 10 working days"

Still waiting for that letter.

Offline dunroving

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Re: Fidelity IRA distribution to UK-periodic No-no!
« Reply #59 on: May 15, 2017, 10:42:31 AM »
A question to "dunroving". Did you ever get the letter from TIAA-CREFF?

Per you post in October 2016..
"It's coincidental that I got an alert about your post as I had just got off the phone (2 hours) with TIAA-CREF. My efforts are ongoing, but TIAA-CREF still don't know what they are doing - 4 weeks ago I was told they had checked my W8BEN, including the detail about Article 19(b) and "Good news, we can confirm you are subject to zero withholding. We will send you a confirmation letter within 10 working days"

Still waiting for that letter.

No, the letter never came. To summarise:

I called them back when I didn't receive a follow-up. Typical TIAA phone call (i.e., never less than 60 minutes, passed from pillar to post, never less than consummately polite but effectively telling you tough luck you're screwed). I eventually got to a senior customer resolutions manager (who it turned out was the person who said to the associate I was talking with the previous time that there was "Good news"). Long story short they said they got it wrong and I definitely must pay 30% tax withholding. <<head explodes for the umpteenth time during a TIAA phone call>>

After a subsequent series of increasingly heated messages and phone calls I eventually reached someone who could possibly do something (let's call him MW). I am not sure whether Nun's text (which I included in my messages) made the difference, or my threat to report them to the FCA, FBI, CIA and anyone who would listen, but essentially they agreed with my position.

Withdrew a wad of cash in December, 30% tax withheld, so they screwed it up. Because the tax year then ended, TIAA could not claw it back (so that is subject to a 1040-NR and a 12-month wait to get it back). MW very apologetic but apologies don't pay the bills. He promised to make sure it worked next time.

Withdrew another wad of cash in March and although they again withheld 30%, MW said sorry, they had to withhold it but he had requested a reimbursement. <<Don't hold your breath, I thought>> Anyway, good news is that the 30% WAS reimbursed within a couple of days. Hallelujah (I reported this in the W8-BEN thread).

Since then I withdrew another wad in April, and same happened again, though iit took about a week to receive the 30%.

So, it seems like as long as MW keeps doing whatever he is doing, the 30% withholding problem is a thing of the past <<crosses fingers and toes>>
« Last Edit: May 15, 2017, 10:44:03 AM by dunroving »