IRA and capital gains questions

I am a US/UK citizen now permanently in the UK. I am working with my US FA to try and make some investment decisions for my 401k/investments to be ready to purchase a house here at some point in the not too distant future. Understandably my FA cannot give tax advice nor does he understand the UK tax system. Ive sent numerous enquiries to the many tax advice site on line and nobody even replies (yeah i know i would have to pay but a reply at least!). Can anyone here give an opinion on the questions below? Many thanks!

- If I pay taxes on my IRA distributions in the US will the be taxable in the UK?
- Will those distributions impact my tax bracket in the UK?
- If I recognize capital gains and pay taxes on the min in the US will they be taxable in the UK?
- Again will those distributions impact my UK tax bracket?

The UK has the primary right to charge tax on both of items mentioned, effectively you'd be budgeting to pay tax at the greater of US or UK tax rates.

Just to add to Guya’s response the capital gains will be quite different in the UK compared to the US because of the exchange rates as you need to know how much the asset/shares cost at purchase and at sale in GBP. I use XE.com historical tables to find out the specific exchange rates in effect at time of  purchase and sale.

@guya Thanks for the response. For a non-financier, can you explain your comment a little more....Are you saying if a pay a higher rate of capital gains in the US then i wont pay in the UK, but if it is lower I will pay the difference in the UK?

@guya Thanks for the response. For a non-financier, can you explain your comment a little more....Are you saying if a pay a higher rate of capital gains in the US then i wont pay in the UK, but if it is lower I will pay the difference in the UK?

When we first moved back to England 7 years ago the first £12,500 of cap gains were free of tax (this is on top of the personal tax free allowance) then above that taxed at 10% (I think) which meant we paid more US tax than UK tax on the gains. Before we moved back I took my name off our after-tax funds as my wife had no other income at the time so the US stock fund dividends and cap gains were not taxed by HMRC,  but were taxed on our joint US tax return. (I had also switched the mutual funds to HMRC reporting ETFs in order to get the better UK tax rates).

Just to add to Guya’s response the capital gains will be quite different in the UK compared to the US because of the exchange rates as you need to know how much the asset/shares cost at purchase and at sale in GBP. I use XE.com historical tables to find out the specific exchange rates in effect at time of  purchase and sale.

I notice that IRS web site says "The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently." and posts its own Yearly average exchange rates so that is another option:
https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates [nofollow]

I notice that IRS web site says "The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently." and posts its own Yearly average exchange rates so that is another option:
https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

The IRS yearly average is really aimed at regular periodic payments such as monthly pensions.

However, the OP is specifically asking about HMRC taxes on capital gains and HMRC post their own monthly exchange rates which is what I use for calculating the conversion from $ to £ on my US pensions taxed by HMRC.

https://assets.publishing.service.gov.uk/media/66faee91e84ae1fd8592eba2/consular-exchange-rates-Oct-2024.csv/preview

 For the specific rates when shares are bought and sold I use XE.com.

The IRS yearly average is really aimed at regular periodic payments such as monthly pensions.

However, the OP is specifically asking about HMRC taxes on capital gains and HMRC post their own monthly exchange rates which is what I use for calculating the conversion from $ to £ on my US pensions taxed by HMRC.

https://assets.publishing.service.gov.uk/media/66faee91e84ae1fd8592eba2/consular-exchange-rates-Oct-2024.csv/preview

 For the specific rates when shares are bought and sold I use XE.com.

Are you sure you should be using the consular rates of exchange?  They are for consular services only.  For October they show the USD <-> GBP as 1.39, while in the real world it didn't get above 1.34.

I used to use the monthly rates published by HMRC (not the consular rates) but they don't seem to publish them any more.  I now use the rate I get from Wise when I do my transfers, which according to the HMRC forum is allowed.  Or you can use something like oanda, xe, etc.

Are you sure you should be using the consular rates of exchange?  They are for consular services only.  For October they show the USD <-> GBP as 1.39, while in the real world it didn't get above 1.34.

I used to use the monthly rates published by HMRC (not the consular rates) but they seem to not publish them any more.  I now use the rate I get from Wise when I do my transfers, which according to the HMRC forum is allowed.  Or you can use something like oanda, xe, etc.

I agree.

I’ve never used the Consular rates,  but I just noticed that HMRC don’t publish their other rates any more. I use xe.com

Interesting, so HRMC previously maintained Exchange Rate info at
https://www.gov.uk/government/collections/exchange-rates-for-customs-and-vat [nofollow]
but this was discontinued near the end of last year.

Another page at https://design.tax.service.gov.uk/patterns-hmrc-govuk-team/archived-patterns-hmrc-govuk-team/ [nofollow]
says "On 13 December 2023, we archived exchange rates — monthly. This was because the pattern was no longer needed by the GOV.UK team. The monthly exchange rates are now available in the tools section of the UK trade tariff tool.", and provides a link to
https://www.trade-tariff.service.gov.uk/exchange_rates [nofollow]
which has current rates and historical rates for 4 years.

Probably does matter since we can use rates from xe.com etc. but looks like HMRC just moved/consolidates their Exchange Rates page rather than discontinuing it.

Hi OP, from your first post it's probable that you will be taxable in the UK and the US on your world wide income, capital gains, dividends etc. So your IRA distributions are going to be included in your income for both US and UK tax purposes - there is a nuance to be understood with periodic vs lump sum payments. There is a US/UK tax treaty in place that outlines how your tax should be divided up between the US and the UK. The UK will have the primary taxing authority, so you basically pay HMRC first and then take tax credits for the amounts you have paid when you do your US taxes. If those credits fully cover your US taxes then you are done, if not then you have to pay the difference to the IRS.