What's a lump sum for purposes of ESC-A10

Extra-Statutory Concession - A10 is an HMRC rule that exempts lump sum distributions from foreign pension from UK tax.

http://www.hmrc.gov.uk/manuals/eimanual/EIM15082.htm

This could obviously be useful for UK residents who worked in the US and have retirement accounts like IRAs, 401k, 403b etc.

However, what exactly constitutes a lump sum distribution. You can take distributions form US defined contribution plans at any frequency and of any amount that you want. I have seen a lump sum defined as a distribution that you make no more frequently than every other year, but that was just a single comment in a discussion forum. Also if the above definition is correct how does having multiple accounts factor in? If you had a 401k and an IRA could you take a distribution from each in alternate years and still have them qualify as lump sums for the purposes of ESC-A10?

I have searched long and hard for an answer to my question, but can't find anything on the web. The use of ESC-A10 seems to be mostly as a tax dodge. People who work in the UK pay into foreign pensions so they can get lump sums tax free, so there is no place where the treatment of 401ks or general flexible defined benefit retirement accounts is covered. ESC-A10 looks as if it is being phased out for people who work in the UK and contribute to foreign schemes, but not for people who have foreign pensions from work abroad. So if you have an IRA or 401k from work in the US you can still take lump sum distributions free of UK tax......now if we only knew what constitutes a lump sum.

I have searched long and hard for an answer to my question, but can't find anything on the web. The use of ESC-A10 seems to be mostly as a tax dodge. People who work in the UK pay into foreign pensions so they can get lump sums tax free, so there is no place where the treatment of 401ks or general flexible defined benefit retirement accounts is covered. ESC-A10 looks as if it is being phased out for people who work in the UK and contribute to foreign schemes, but not for people who have foreign pensions from work abroad. So if you have an IRA or 401k from work in the US you can still take lump sum distributions free of UK tax......now if we only knew what constitutes a lump sum.

Thanks for your efforts on this.  Keep up the good work. 

We've decided to ramp up the speed of our IRA to ROTH conversions (at 25% tax rate) so that on return to the UK we won't have to begin paying extra UK tax on that money because ROTH withdrawals are not taxed in the UK.

Thanks for your efforts on this.  Keep up the good work.  

We've decided to ramp up the speed of our IRA to ROTH conversions (at 25% tax rate) so that on return to the UK we won't have to begin paying extra UK tax on that money because ROTH withdrawals are not taxed in the UK.

Thanks.

I'm going to do the same thing before I become UK resident. I'll do a number of annual rollovers to my ROTH up to the top of the 15% US tax bracket. I'm not really sure how much this will save me as my taxable income in the US and the UK will be quite small, but it seems like a good plan to reduce RMDs and I'll take 15% income tax.

I actually just had an email from the "HMRC PT International Advisory" about lump sums. First off they claimed that ROTH withdrawals would be subject to UK tax. That's obviously wrong so I explained why they are UK tax free. But the email then also stated that a lump sum distribution would be the distribution of the entire pension amount. Given the inaccuracy of the ROTH information I have no real confidence in the lump sum definition. I would put my trust in a professional accountant who understands ESC-A10 and can point to some real world cases and examples.

The IRS and every investment terms definition website I can find define a lump sum distribution as payment of the entire balance within a single tax year.

http://www.irs.gov/taxtopics/tc412.html

I cannot imagine that HMRC would define a LSD any differently, particularly w/r/t distributions from a US-held account.

The IRS and every investment terms definition website I can find define a lump sum distribution as payment of the entire balance within a single tax year.

http://www.irs.gov/taxtopics/tc412.html

I cannot imagine that HMRC would define a LSD any differently, particularly w/r/t distributions from a US-held account.

I agree, and I think breaking a large IRA into multiple smaller IRA's then liquidating each one over time claiming them as lump sum distributions from pension plans would be a bit risky from an audit point of view, at least for me.

I agree, and I think breaking a large IRA into multiple smaller IRA's then liquidating each one over time claiming them as lump sum distributions from pension plans would be a bit risky from an audit point of view, at least for me.

I agree as well. Splitting an IRA into many smaller IRAs so that you can withdraw the entire account amount to try to satisfy the lump sum requirement of ECS-A10 and limit your US annual income just feels dishonest to me. I'm  puzzled by the statements made by Buzzacott that IRA to ROTH conversions are free of UK tax

Read the paragraphs on page 1 and 2  titled "Converting a Traditional IRA into a Roth IRA"

http://www.buzzacott.co.uk/uploads/insights/Buzzacott%20Year%20End%20Insight%20for%20Expatriate.pdf

and by the definition of a lump sum by BritishAmerican Tax

http://www.taxationweb.co.uk/forum/uk-tax-on-us-retirement-ira-t34553.html

I can see how Buzzacott could come to their conclusion if the entire IRA was converted to a ROTH because it could be considered a lump sum and hence tax free under ESC-A10. But if you only convert say 25% of the IRA to control the amount of US tax you'll pay, do you then have to pay UK tax on that amount as well? That was my initial belief before I learned about ESC-A10. As you are taking US taxable income from your IRA I just thought that you'd have to also declare that income in the UK. Unfortunately Buzzacott doesn't explain their reasoning or explicitly state that you have to convert the entire IRA to a ROTH to avoid UK tax.

BritishAmericanTaxe's definition of a lump sum sounds strange to me, but it is a single statement in a public forum without any backup so I would not use it in any planning without professional confirmation. But she is very knowledgeable which is the only reason I posted the link.

The IRS and every investment terms definition website I can find define a lump sum distribution as payment of the entire balance within a single tax year.

http://www.irs.gov/taxtopics/tc412.html

I cannot imagine that HMRC would define a LSD any differently, particularly w/r/t distributions from a US-held account.

But we need the definition according to HMRC. In the UK you can take 25% of your pension savings as a tax free lump sum. So there's a case where HMRC considers a partial payout as a lump sum. For me a lump sum implies a single large payment.

Maybe the sensible thing to do is render all this argument moot by doing IRA to ROTH rollovers before you move to the UK.