USC/UKC, UK resident, reporting 401(k) distribution

I am USC/UKC, resident in UK, received my first periodic distribution from 401(k).
20% of the distribution was withheld by the 401(k) custodian.
I am filing Self Assessment online.

I need a sanity check because I am lost in a circle of thoughts and options of filing this distribution, first to HMRC and then to IRS.
I believe that to HMRC the distribution is reported as Foreign Pension.
I expect to claim back the 20% withholding from IRS.

I then see 3 ways to go when entering info into the Foreign pensions page.

1. Enter the full distribution amount, pre-withholding and be charged tax upon it. Then file to IRS for credit for Foreign tax

or
2. Enter the full distribution amount, pre-withholding, and enter the withheld amount and be charged UK tax on the received amount.
This is attractive because it results in a lower UK Tax bill than option 1.
Then file to IRS for credit for Foreign tax.
But this doesn't make sense because if I get a full refund from IRS then I won't have paid UK tax on the full distribution.

or
3. Enter the full distribution amount, pre-withholding, and claim Foreign Tax Credit Relief (as indicated in DT Digest)
This is attractive because it results in a lower UK Tax bill than option 1 and 2.
Then file to IRS for credit for Foreign tax (there will be some Foreign Tax because of my other UK income sources).
But this doesn't make sense because if I get a full refund from IRS then I won't have paid tax on the full distribution in either UK or US.

So I end up thinking that option 1 is the proper course - but can't help wondering that because this is the highest tax amount payable then am I somehow paying in excess. But options 2 and 3 seems like I am somehow getting away with paying less than due and that is not my intent either.

Can anyone set me on the right way to report my 401(k) distribution to HMRC?
Thanks

We have to assume that you are paying tax on the arising basis and that you have elected to treat this 401(k) as a pension under the treaty.

Assuming so, the UK gets to charge tax on 90% of the pension income and that 90% that is doubly taxed becomes resourced as foreign income (article 24) on your US returns so the US gives credit for UK tax.

Essentially you have to postively elect into using the treaty on both sets of tax returns.

Thanks for your response.

Yes, I can confirm that I pay tax in UK on arising basis.

What do I have to do to elect to treat this 401(k) as a pension under the treaty?  I didn't think there was any other option but that it be a pension. Also I am under impression that as USC with foreign address that I get the mandatory 20% withholding automatically, which is fine by me if that is the rule.

And similar, what do I need to do to positively elect into using the treaty on both sets of tax returns? I was thinking that I just filled in the returns appropriately in line with the treaty.  I haven't had anything ask me if I want to elect or not. Is there some form to make such an election?

Thanks

Ok, I searched some more and found IRS Form 8833 that appears on first view to be a Disclosure to advise IRS that I am applying treaty based position to income..... and presume this is how a 401(k) would be advised that I will treat it per Treaty rules.
Is this what you refer to?

Does HMRC have a similar form? I never did find one or any reference to one.

Does HMRC have a similar form? I never did find one or any reference to one.

They're website is pretty useless. Their phone system's just as bad though!

Ok, I searched some more and found IRS Form 8833 that appears on first view to be a Disclosure to advise IRS that I am applying treaty based position to income..... and presume this is how a 401(k) would be advised that I will treat it per Treaty rules.
Is this what you refer to?

Does HMRC have a similar form? I never did find one or any reference to one.

Yes the 8833 is where you claim a treaty benefit with the IRS. There is no equivalent HMRC form for a UK resident receiving US pension income, you just write a note on your self assessment form.

Your option 1 looks right to me, but you would only enter 90% of the pension income (the amount would be the total income before the US withholding) on your UK tax form. You'd then take the UK tax and enter it as a foreign tax credit on your US taxes. Your US refund will be equal to:

(foreign tax credit) + (US 20% withholding) - (US tax due)

FYI if you were to roll your 401k over into an IRA the US withholding would only be 10%.

I am also a USC/UKC expat considering retiring in the UK on US funds and there must be many baby boomers in the same boat.  Is there this amount of interpretation on 401k distributions from a DTT that has been out for over a decade?

The Vienna Convention on the Law of Treaties states that the language of treaties, like that of any law or contract, must be interpreted when the wording does not seem clear or it is not immediately apparent how it should be applied in a perhaps unforeseen circumstance. All treaties are open to interpretation. Consequently the IRS and HMRC occasionally update their interpretations of the agreement; and the treaty itself will change in meaning as tax and other relevant laws change within both jurisdictions.