HMRC treatment of Roth IRAs

My understanding is that HMRC will not tax Roth IRA withdrawals?

What about internal gains as it grows? Are those considered taxable?

My understanding is that HMRC will not tax Roth IRA withdrawals?

What about internal gains as it grows? Are those considered taxable?

My understanding is that Roth IRA withdrawals are free of UK tax, as is the growth within the Roth.  In other words HMRC follow the same rules as the IRS when it comes to Roth IRA's.  I am counting on this as I've been doing IRA to Roth conversions this past few years prior to moving back to the UK.

When we do move back I am also hoping that IRA to Roth conversions will only be taxable in the USA based on article 18 in the DTA which I believe says transfers between pension plans are taxable in the country where they are held, as we will still have money in IRA's that I would like to get converted to Roth before RMD's at age 70 since we'll be in the UK 40% tax band.

This what the US Treasury said in their Technical Explanation to the US/UK Tax Treaty. No-one knows if HMRC agree with the US Treasury though, as the Treaty is open to so many interpretations.

This what the US Treasury said in their Technical Explanation to the US/UK Tax Treaty. No-one knows if HMRC agree with the US Treasury though, as the Treaty is open to so many interpretations.

In relation to tax free withdrawals, IRA to Roth conversions, or both?

From the Technical Explanation by the Treasury it appears that Roth withdrawals should be tax free in the UK (assuming HMRC agrees).

https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf

Thus, for example, a distribution from a U.S. "Roth IRA" to a U.K. resident would be exempt from tax in the United Kingdom to the same extent the distribution would be exempt from tax in the United States if it were distributed to a U.S. resident. The same is true with respect to distributions from a traditional IRA to the extent that the distribution represents a return of nondeductible contributions.

I take the position that a ROTH is a pension account as defined in the DTA and so any gains are tax free in both the US and the UK if you claim treaty relief. The withdrawals are also tax free in both the US and the UK. Accounts like IRAs, ROTHs, 401ks, 403bs etc are all US qualified retirement accounts and so covered by the treaty. The question I always have is how HMRC treats 457 deferred compensation accounts. I suspect they would not get the advantageous treatment of a qualified retirement account because of their liberal withdrawal terms, so if I ever move back to the UK I will roll my 457 into an IRA and trade the availability of penalty free early withdrawal for UK tax treatment certainty.


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Thanks everyone! This board is a great resource.   

You can take any position you want, but HMRC claim they are not bound by any words of Technical Explanation written by the US Treasury. This was discussed as recently as last July at the Expat Forum (paragraphs 4.6 to 4.8 represent HMRCs official minutes of the discussion - which was slightly more in depth than the minutes may indicate: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/455369/Minutes_8_July_2015.pdf).

You can take any position you want, but HMRC claim they are not bound by any words of Technical Explanation written by the US Treasury. This was discussed as recently as last July at the Expat Forum (paragraphs 4.6 to 4.8 represent HMRCs official minutes of the discussion - which was slightly more in depth than the minutes may indicate: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/455369/Minutes_8_July_2015.pdf).

In the case of a ROTH IRA I go by my interpretation of the DTA and HMRC's own words, there no need to refer to the technical Explanation. A ROTH Individual Retirement Account is a pension fund for treaty purposes as it fulfills the definition os a pension in Article 3, and so it's growth can be tax free in both the US and the UK and when withdrawals are made those will be tax free in the UK to the extent that they are tax free in the US....ie entirely tax free. That would be how I would deal with a ROTH for US and UK tax purposes and if HMRC wanted to question any of that I think I'd have pretty good answers. Now there will be many more mirky situations, but I don't feel this one is difficult at all.

http://www.hmrc.gov.uk/manuals/dtmanual/dt19876a.htm