ROTH conversions before moving to the UK

More and more it looks like I'll be moving from the US to the UK. My retirement pensions and UK state pension and US SS will make me a UK 40% rate tax payer. I have around $1M in IRAs that I'm currently moving into ROTH IRAs at a rate of around $100k per year to keep me in the US 24% marginal tax bracket. Given HMRC's new policy of taxing these rollovers it looks like I'll be paying 40% UK tax on  these annual rollovers and maybe even a bit of 45% tax. So I'm considering rolling over the entire $1M before I leave the US and become subject to UK tax given the US highest marginal tax rate is 37%. There is also state tax to consider at 5%. So are other people considering this?

Part of the motivation behind a large one time rollover is to have my whole retirement pot in a tax free wrapper so that if I need to move large amounts of money at short notice I can do it without tax implications...well for now at least, I sort of expect capital transfer controls at some point which is something I never thought would be a worry.

I presume that you are fully up to date with UK government proposals to make pensions subject to Inheritance Tax with effect from April 6, 2027?

Rachel from Accounts is on a mission to increase the tax take as much as she possibly can especially taking from those of us who worked hard all of their lives to accumulate a pension that they had previously expected that they could pass on to their children free of tax.

There are even reports today (Daily Telegraph) that the UK Treasury is now even considering putting restrictions and limits on lifetime gifts and potentially bringing them under Inheritance Tax.

I don't know your own personal circumstances (i.e. children), but if you have plans to leave them funds (via Inheritance or lifetime gifts), you may be well advised to consider doing so before you take up UK tax residency.

Those with even moderate wealth (by UK standards) are now actively looking at abandoning the UK purely due to tax reasons.

I am not too old to rememeber the 1970's when a Labour Government's tax policies resulted in a 98% tax rate for those who were deemed wealthy enough - no 98% is not a typo - 83% top rate of income tax and a further 15% investment income surcharge (deemed unearned income). 

Good luck!

I presume that you are fully up to date with UK government proposals to make pensions subject to Inheritance Tax with effect from April 6, 2027?

Rachel from Accounts is on a mission to increase the tax take as much as she possibly can especially taking from those of us who worked hard all of their lives to accumulate a pension that they had previously expected that they could pass on to their children free of tax.

There are even reports today (Daily Telegraph) that the UK Treasury is now even considering putting restrictions and limits on lifetime gifts and potentially bringing them under Inheritance Tax.

I don't know your own personal circumstances (i.e. children), but if you have plans to leave them funds (via Inheritance or lifetime gifts), you may be well advised to consider doing so before you take up UK tax residency.

Those with even moderate wealth (by UK standards) are now actively looking at abandoning the UK purely due to tax reasons.

I am not too old to rememeber the 1970's when a Labour Government's tax policies resulted in a 98% tax rate for those who were deemed wealthy enough - no 98% is not a typo - 83% top rate of income tax and a further 15% investment income surcharge (deemed unearned income). 

Good luck!

Yes, I'm well aware of the tax proposals in the UK. The pension inheritance tax changes don't impact US DC retirement accounts as they never qualified for the UK IHT exemption anyway. I'm already making gifts to UK based family to take advantage of the US gift tax rules and will probably make some larger gifts beyond the IRS $19k/person/year declaration limit before I leave the UK. The balancing act is leaving me a comfortable cushion.

Fortunately we started IRA to Roth conversions the year we retired in 2010, long before we considered moving back to the UK and by 2022 had converted all of it to Roths.  We are both age 70 this year. I expected that the conversions would offset future higher US tax rates, particularly once we both starting drawing SS and were subjected to RMDs.

We have been gifting to our 2 children since 2017 and have now gifted well over $500k to each of them, and will continue to do so. If the gifting rules change dramatically against us then at least we have already saved a whole of taxes. Guessing what future taxes might be is extremely difficult.

Good luck to everyone treading through this minefield.

Fortunately we started IRA to Roth conversions the year we retired in 2010, long before we considered moving back to the UK and by 2022 had converted all of it to Roths.  We are both age 70 this year. I expected that the conversions would offset future higher US tax rates, particularly once we both starting drawing SS and were subjected to RMDs.

We have been gifting to our 2 children since 2017 and have now gifted well over $500k to each of them, and will continue to do so. If the gifting rules change dramatically against us then at least we have already saved a whole of taxes. Guessing what future taxes might be is extremely difficult.

Good luck to everyone treading through this minefield.

I'm in my mid 60s so my plan was to get everything into the ROTH at 24% marginal tax rate before RMDs were necessary, but other factors are now becoming more important to me than optimal tax planning. I've been doing the conversions for a few years so there's a substantial amount in the ROTH already, but my original plan still has about 10 years to run. The change in HMRC policy to tax ROTH rollovers is a big fly in my plans. I've been giving family amounts up to the IRS notification amounts for a few years now and I'll give more before I return to the UK, but to really make an impact I'll have to liquidate IRAs and that also has tax consequences for me. I don't want to reduce my non-retirement accounts too much so I have plenty of funds available for any move and to make cash flow easy between the US and any UK bank accounts I set up. I will make sure to take US SS before any move and have it deposited into a US bank account. I would probably defer it if I stay in the US, but I don't want to apply for US SS from the UK with the potential hassles. So US SS and my other pensions will put me into the UK 40% bracket and if you add $100k/year in ROTH rollovers the UK tax bill is pretty high.

So given the recent changes to HMRC tax policy wrt ROTH conversions what are people's thoughts about those conversions prior to a move given the relative US and UK tax brackets. I'm also attracted to the simplicity of having all my DC pension money in a US and UK tax free account and doing it all at once with a US marginal tax rate of 37% doesn't sound entirely stupid when it will be taxed at a marginal rate of 40% by the UK. Of course I could just leave it to keep growing and let my executor and heirs deal with the UK 40% IHT and income taxes. But he ROTH conversion is also for the convenience of my heirs.

I'm in my early 60s so my plan was to get everything into the ROTH at 24% marginal tax rate before RMDs were necessary, but other factors are now becoming more important to me than optimal tax planning. The change in HMRC policy to tax ROTH rollovers is a big fly in my plans. I've been giving family amounts up to the IRS notification amounts for a few years now and I'll give more before I return to the UK, but to really make an impact I'll have to liquidate IRAs and that also has tax consequences for me. I don't want to reduce my non-retirement accounts too much so I have plenty of funds available for the move and to make cash flow easy between the US and any UK bank accounts I set up.

So given the recent changes to HMRC tax policy wrt ROTH conversions what are people's thoughts about those conversions given the relative US and UK tax brackets.

Personally I would do as you suggest and roll it all over in a big lump sum before you move, or 2 lump sums, now and before you move - if you move after April 5th next year that gives you 2 years to convert it all. Although that would mean some of it being taxed at 37%, that is still better than all of it being taxed at 40% or higher in the UK. Run the numbers through TurboTax to see how much of it will be taxed, the total will be well below 37%.

Apart from starting earlier I had the advantage of being married and the UK taxes individuals so before we moved we took my name of all our taxable joint accounts to spread the tax burden.

So given the recent changes to HMRC tax policy wrt ROTH conversions what are people's thoughts about those conversions given the relative US and UK tax brackets.

I doubt that Rachel from Accounts reads this forum, but if she got wind of another way to raise taxes without impacting the "working person", she'll go for it - of that you can be sure.

@durhamlad is right when he says "Guessing what future taxes will be is extremely difficult" but the black hole in the UK Government Finances that continues to grow  on a daily basis would indicate that UK taxes are going to rise significantly with the autumn statement at the end of October/beginning of November - biggest question is which taxes will they be? UK & US tax policies appear to be at opposite ends of the spectrum.

I have to confess to being out of depth when it comes to talking about ROTH - I have no knowledge or experience on that topic. When I left the US many decades ago I cashed in my IRA, paid 20% tax to Uncle Sam and rolled it into a UK private pension which at that time gave me 45% tax relief. Fearing the worst from this government, I cashed out my 25% tax free lump sum last year and I don't regret it - I'm still convinced they will seek to limit this in some form in the autumn statement - it's just too tempting for them to ignore - low hanging fruit.

Personally I would do as you suggest and roll it all over in a big lump sum before you move, or 2 lump sums, now and before you move - if you move after April 5th next year that gives you 2 years to convert it all. Although that would mean some of it being taxed at 37%, that is still better than all of it being taxed at 40% or higher in the UK. Run the numbers through TurboTax to see how much of it will be taxed, the total will be well below 37%.

Apart from starting earlier I had the advantage of being married and the UK taxes individuals so before we moved we took my name of all our taxable joint accounts to spread the tax burden.

My current strategy of $100k/year plus my other income keeps me in the 24% tax bracket and the next bracket jumps to 32% and then quickly 35%, but I could get the conversion done at a marginal 35% in two years...or one year if I got married ;-) That sounds great, but my current plan also has me paying the tax from non-retirement accounts and going from a $40k/year tax bill to maybe $150k would mean having to pay the bill with some conversion dollars which I'm trying to avoid.  This might not come to pass given events in Nov 2026, but I'll have at least two US tax cycles to do my conversions before I return to the UK.

I have to confess to being out of depth when it comes to talking about ROTH - I have no knowledge or experience on that topic. When I left the US many decades ago I cashed in my IRA, paid 20% tax to Uncle Sam and rolled it into a UK private pension which at that time gave me 45% tax relief. Fearing the worst from this government, I cashed out my 25% tax free lump sum last year and I don't regret it - I'm still convinced they will seek to limit this in some form in the autumn statement - it's just too tempting for them to ignore - low hanging fruit.

The Roth is a great tax free vehicle to have. My Roth is a little under $1m  and each year I take the dividends  it spits out as a tax free distribution which is very nice to have as I’m in the 40% bracket. Last year, in July, my wife decided that Trump may win in November so she cashed out her entire Roth tax free and bought 2 buy-to-let properties in the town we live in, same sub-division in fact. The idea being to diversify in both assets and currencies in case the US economy tanks.  No idea how things will pan out but I think she made a good decision, spreading out the risk.

I have to confess to being out of depth when it comes to talking about ROTH - I have no knowledge or experience on that topic. When I left the US many decades ago I cashed in my IRA, paid 20% tax to Uncle Sam and rolled it into a UK private pension which at that time gave me 45% tax relief. Fearing the worst from this government, I cashed out my 25% tax free lump sum last year and I don't regret it - I'm still convinced they will seek to limit this in some form in the autumn statement - it's just too tempting for them to ignore - low hanging fruit.

We get accustomed to our various tax benefits. I think the UK IHT threshold of 325k pounds and something for the house if you leave it to your kids is ridiculously low because in the US Federal estate tax starts at $14M. But in the UK having 25% of your DC pension tax free and to have it excluded from IHT seems very strange to me as DC pensions are fully taxed and form part of your estate in the US. The UK has some great tax benefits like the ISA which is far more generous than the US closest equivalent which is the ROTH. FYI In think the UK bringing DC pensions under the IHT umbrella is sensible and they only remained outside it as a bizarre hang over from when pensions were almost entirely Defined Benefit. But it's a big change in taxation and IMO should be moderated by an increase in the IHT threshold.

The Roth is a great tax free vehicle to have. My Roth is a little under $1m  and each year I take the dividends  it spits out as a tax free distribution which is very nice to have as I’m in the 40% bracket. Last year, in July, my wife decided that Trump may win in November so she cashed out her entire Roth tax free and bought 2 buy-to-let properties in the town we live in, same sub-division in fact. The idea being to diversify in both assets and currencies in case the US economy tanks.  No idea how things will pan out but I think she made a good decision, spreading out the risk.

I've changed my asset allocation since the tariffs and reduced the small percentage of US bonds I held and increased my global equities and cash. I'm currently a landlord in the US and my plan would be to sell my US home and rental and buy something a bit smaller in the UK and hold a fairly large amount of cash in UK saving accounts as I'm sure you know anything else would be problematic for a US citizen. If I come to the UK with essentially just a US based ROTH and some HMRC reporting ETFs it makes it easy to cash out and move everything to the UK and then renounce US citizenship so I can reinvest in UK based investment funds. But that's farther down the line and who knows what consequences that might have to US based pension and SS payments?

We get accustomed to our various tax benefits. I think the UK IHT threshold of 325k pounds and something for the house if you leave it to your kids is ridiculously low because in the US Federal estate tax starts at $14M. But in the UK having 25% of your DC pension tax free and to have it excluded from IHT seems very strange to me as DC pensions are fully taxed and form part of your estate in the US. The UK has some great tax benefits like the ISA which is far more generous than the US closest equivalent which is the ROTH. FYI In think the UK bringing DC pensions under the IHT umbrella is sensible and they only remained outside it as a bizarre hang over from when pensions were almost entirely Defined Benefit. But it's a big change in taxation and IMO should be moderated by an increase in the IHT threshold.

I agree with all of that. The IHT thresholds have not changed since 2009(?). Ridiculous. The pension exclusion never included us as we had no UK DC pensions but I’m not surprised that they are included now. We are fortunate again in that we are married and have 2 children so that we have a combined IHT threshold of £1m, plus we live in Yorkshire where the value of our houses are much lower than the equivalents in the south. Under current UK law we need to gift or otherwise lower our net worth by about £500k to avoid any IHT. If we live long enough and the tax law doesn’t change too much then that will be achievable, but it is what it is.

I've changed my asset allocation since the tariffs and reduced the small percentage of US bonds I held and increased my global equities and cash. I'm currently a landlord in the US and my plan would be to sell my US home and rental and buy something a bit smaller in the UK and hold a fairly large amount of cash in UK saving accounts as I'm sure you know anything else would be problematic for a US citizen. If I come to the UK with essentially just a US based ROTH and some HMRC reporting ETFs it makes it easy to cash out and move everything to the UK and then renounce US citizenship so I can reinvest in UK based investment funds. But that's farther down the line and who knows what consequences that might have to US based pension and SS payments?

Good plan.

I’ve decided that giving up US citizenship won’t make things much easier as between us we have 4 US pensions plus taxable etf funds and my Roth.

We have all our cash invested in various UK savings accounts including NS&I.

Good plan.

I’ve decided that giving up US citizenship won’t make things much easier as between us we have 4 US pensions plus taxable etf funds and my Roth.

We have all our cash invested in various UK savings accounts including NS&I.

I generally agree. I would only give up US citizenship if capital controls become an issue and getting money from the US to the UK became problematic enough that I feel it's better to cash everything in and transfer it to the UK. Then I'd want to get it back into investment funds and that would only be possible after renouncing US citizenship. Of course who knows what the issues would be for US SS and pensions. It's pretty ridiculous that this has entered my mind as a possibility.