UK IHT on US IRAs and ROTH IRAs

It's here

https://community.hmrc.gov.uk/customerforums/sa/2535b7a2-1c36-ee11-a81c-002248c79814#:~:text=You%20will%20not%20declare%20the,financial%20adviser%20regarding%20your%20options.

in the answer to Stephanie Thomas by Admin 19.

That is dealing with the tax payable by someone who inherited an IRA, not the IHT that the estate of the person who owned the IRA would pay. Also many of HMRC's responses in that thread are worrying to me as they seem to have never heard of the DTA. The response by HMRC Admin 5 is good IMO.

That is dealing with the tax payable by someone who inherited an IRA, not the IHT that the estate of the person who owned the IRA would pay. Also HMRC's responses in that thread are worrying to me as they seem to have never heard of the DTA.

I guess there are many questions here.  Be sure to let us know when you get a definitive answer from HMRC, which might be a stretch because they often disagree with themselves.  Have you had an opinion on this from a US/UK tax professional?

Of course, the other point to note is that if an IRA is inherited by a spouse then it's a moot point anyway because it'll pass to her/him IHT free.  I assume that's correct?

I guess there are many questions here.  Be sure to let us know when you get a definitive answer from HMRC, which might be a stretch because they often disagree with themselves.  Have you had an opinion on this from a US/UK tax professional?

Of course, the other point to note is that if an IRA is inherited by a spouse then it's a moot point anyway because it'll pass to her/him IHT free.  I assume that's correct?

Yes IHT isn't an issue for a surviving spouse and of course they get the extra threshold too. Still it could just be pain deferred.

If things go so that I need to return to the UK I will definitely get some professional advice before moving and maybe look into an Excluded Property Trust for some assets and come up with an aggressive gifting strategy. The issue really comes down to the vast difference in IHT thresholds between the US and the UK - $13M and £325k respectively. My estate doesn't trouble the current US limit, but it is well over the UK threshold and without being able to exclude US pension assets from UK IHT my estate would have an eye watering tax bill.

I sent a post about UK IHT on IRAs to the HMRC community forum 3 days ago and it still hasn't been posted to the site. It must need a lot of thinking on HMRC's part to formulate an answer. I imagine if it does ever appear I will be directed to the Inheritance Tax department. They probably won't know much about IRAs and their structure (why should they?) so won't be of much help either.

The one glimmer of hope is that IRAs qualify as Excluded Property Trusts.

I sent a post about UK IHT on IRAs to the HMRC community forum 3 days ago and it still hasn't been posted to the site. It must need a lot of thinking on HMRC's part to formulate an answer. I imagine if it does ever appear I will be directed to the Inheritance Tax department. They probably won't know much about IRAs and their structure (why should they?) so won't be of much help either.

The one glimmer of hope is that IRAs qualify as Excluded Property Trusts.

I find this whole thing quite bizarre.  Imagine the situation where an IRA far outweighs other assets - which is entirely possible.  The estate i.e. the executor - likely a beneficiary - could potentially have to close the IRA in order to have enough funds to pay the IHT.  In doing so, they would have to pay 30% of the IRA value in tax to the US (lump sum withdrawal), in order to have the funds they need to pay 40% IHT in the UK.  It's nuts - assuming it's true.

Yes the tax

I find this whole thing quite bizarre.  Imagine the situation where an IRA far outweighs other assets - which is entirely possible.  The estate i.e. the executor - likely a beneficiary - could potentially have to close the IRA in order to have enough funds to pay the IHT.  In doing so, they would have to pay 30% of the IRA value in tax to the US (lump sum withdrawal), in order to have the funds they need to pay 40% IHT in the UK.  It's nuts - assuming it's true.

Agreed, it's not uncommon for IRAs to be a few million dollars, but the US estate tax threshold of $13M means that there's no danger of Federal estate tax and the beneficiaries can take the money out over a number of years, although the IRS has rules about that. If those IRAs are within the estate of a UK domiciled person then a $1M tax bill would not be outlandish and as you point out any lump sum withdrawal from the IRA to pay that bill would also be taxed as income. Another wrinkle is that if the IRA passes directly to the beneficiaries then the estate/executor will have to claw back the money from the beneficiaries. Buzzacotts has some posts about US/UK estate planning, but nothing specific about UK IHT on US pensions, IRAs, 401ks etc. The main way to protect US assets seems to be Excluded Property Trusts set up while a non-dom, but IRAs are never mentioned. That actually gives me a glimmer of hope as no one seems to worry about it.

The potential for large amounts of income tax to also be due on IRAs underlines the importance of TIRA to ROTH IRA rollovers,

FYI here is a depressing take on this by David Treitel who is a guru in this area. Also your nationality and "domicile" are vital to how UK IHT is applied. I also wonder if it would be better to turn an IRA into a lifetime annuity, that would avoid having any pensions balance at death, but probably increase your income tax bill. Of course the annuity route is similar to just taking large withdrawals from the IRA each year, and you still have to spend or gift the money to get it out of the estate, it's only advantage is that the annuity ensures that there's nothing left in the IRA when you die.

https://www.taxationweb.co.uk/forum/tax-on-usa-ira-accounts-t52282.html#:~:text=The%20IRA%20is%20generally%20considered,withdraw%20from%20the%20traditional%20IRA.

FYI here is a depressing take on this by David Treitel who is a guru in this area. Also your nationality and "domicile" are vital to how UK IHT is applied. I also wonder if it would be better to turn an IRA into a lifetime annuity, that would avoid having any pensions balance at death, but probably increase your income tax bill. Of course the annuity route is similar to just taking large withdrawals from the IRA each year, and you still have to gift the money to get it out of the estate, it's only advantage is that the annuity ensures that there's nothing left when you die.

https://www.taxationweb.co.uk/forum/tax-on-usa-ira-accounts-t52282.html#:~:text=The%20IRA%20is%20generally%20considered,withdraw%20from%20the%20traditional%20IRA.

Funnily enough, I had the very same thought a couple of days ago.  Never thought of it before.  The problem might be (in my case) getting an annuity as a non-resident.