Reporting an IRA Distribution on UK Tax Form

Could someone please tell me exactly where on the UK Self Assessment Tax form (online filing) I report the distibution from a US IRA? I withdrew funds from the IRA in Feb 2012 which was deposited into my Lloyds offshore stirling account. Athough I have not set up a scheduled withdrawal plan, I do plan on making another withdrawal later in Feb.

Is it considered interest, dividends, or capital gains?

This is the only income I have to report in the UK but I don't know exactly where on the form I have to report it.

Thank you,
John

No-where unless you are electing into the treaty.

If you are not electing the treaty it is a look through and each item of income, capital gains or offshore income gains are reported on the foreign pages.

Thanks for the reply.

I am using the treaty. I'm an American citizen who is now a British resident (ILR). I'm retired from the US Military so my retirement pay is taxable in the US and not the UK, but my IRA distribution is taxable in the UK.

Back in the mid 1980s I contributed $6,000 into a mutual fund IRA and elected to reinvest by interest, dividends, and capital gains. Over the years the value of the mutual fund grew to a very sizable amount and in Feb 2012 I took a distribution of $30,000 (£18,750). Now I'm trying to figure out how to report it on my UK self assessment form.

Any help would be greatly appreciated.

John

If you are using the treaty payments from pensions and retirement accounts like IRAs are classed as income, so you don't need to worry about capital gains etc. They will be taxed as income in the US and the UK.

For the Military pension under the treaty it is only taxable in the US and you'd enter it on your 1040. I'm not sure how you inform HMRC that this income is UK tax exempt or even if you need to tell them anything, from what I've gleaned claiming treaty exemptions in the UK usually involves notes written on the Self Assessment form.

For the US IRA distributions if you are taxed on an arising basis you would enter them on the HMRC Foreign Income Form SA106. You would then use the UK tax paid as a credit on your 1040, remembering that your IRA administrator will probably already have withheld 10% US tax.

White space disclosure is mandatory if adequate disclosure is to be made so that discovery is to be avoided. Essentially one needs to appraise HMRC of the facts and the rationale so that an HMRC officer 'could be reasonably expected, on the basis of the information made available to him...to be aware of the situation' (see - for example - Lansdowne Partners Ltd Partnership [2011] EWCA Civ 1578 in the Court of Appeal). 

Distribution from an IRA. Advisers have different views. Do your own research and be prepared to back it up. In our view, the bottom line is:-
- if the distribution is a lump sum, only taxable in the United States, at graduated US tax rates (even if no tax is withheld) and suggest you use SA106 Foreign Income top of second page to report what you've received and use white space to explain why it isn't taxable in the UK
- if pension, taxable in UK to the same extent taxable in the USA (i.e. after basis) but also with TA 1988, s 65(2) deduction,  suggest you use SA106 Foreign Income second page, overesas pension two thirds the way down
- in my view there is reason to analyse out which combination of lump sum / annuity you want for least tax and for that you may want a tax planner

Thanks for all the replies. I have come to the conclusion that it will have to considered a UK taxable foreign pension. If I was still living in the US it would be reported on line 15 (IRA distribution) of my 1040 and taxed as ordinary income.

I don't think the distribution qualifies as a lump sum because I only withdrew a portion of the money in Feb 2012 and plan to withdraw another portion later this month. The fund still has money in it and I continue to reinvest the dividends and capital gains that are paid back into the fund.

I have used SA 106 and marked the box "Overseas pensions, social security benefits and royalties etc". Is this the correct box to use?

Thanks again,
John

John - I do not think there is any doubt here. If you are electing into the treaty that is where most folks would enter such payments; ensuring that UK tax was charged on 90% of the payment (but only if you are subject to tax on the arising basis).

You will still require a white space entry explaining which treaty Article you are relying on to be dealing with this as if it was a pension payment.

John - your question on this other webforum was slightly different. In this question you say that you deposited it offshore; so you will need to think whether to claim the remittance basis when preparing your UK return:
http://www.taxationweb.co.uk/forum/reporting-an-ira-distribution-on-uk-tax-form-t39883.html

I am claiming on the arising basis. I have four sources of income:
1. Military retirement pay - taxable in the US
2. City Government (local council) retirement pay - taxable in the US
3. IRA distributions - taxable in the UK
4. US Social Security (starting the the 2012-2013 tax year) - taxable in the UK

I use the US-UK tax treaty and use the white space to report my military and city government retirement pay.

Guya: What did you mean by "ensuring that UK tax was charged on 90% of the payment"? When I complete the form they compute my tax by subtracting my personal allowance from my full IRA distribution and multiply the balance by 20%.

John

I am claiming on the arising basis. I have four sources of income:
1. Military retirement pay - taxable in the US
2. City Government (local council) retirement pay - taxable in the US
3. IRA distributions - taxable in the UK
4. US Social Security (starting the the 2012-2013 tax year) - taxable in the UK

For 3. the IRA periodic distributions are taxable in the UK and the US

- if pension, taxable in UK to the same extent taxable in the USA (i.e. after basis)

Rob - When I came to the UK in 1996, I had US pensions (403b, 401k and IRA), all contributions were made from US income prior to UK residency and I made no subsequent contributions to them (none of the current distribution is remitted to the UK but since the change in UK law, I pay UK tax on an arising basis). Some of the contributions to those pensions were made with after-tax funds. I was told several times by various tax people that the UK doesn't recognize a basis in pensions (or at least my particular pensions). Rather they just give you a 10% 'discount' so the distributions are only taxed at 90%. Could you clarify or point me to the code sections.

Distribution from an IRA. Advisers have different views. Do your own research and be prepared to back it up. In our view, the bottom line is:-
- if the distribution is a lump sum, only taxable in the United States, at graduated US tax rates (even if no tax is withheld) and suggest you use SA106 Foreign Income top of second page to report what you've received and use white space to explain why it isn't taxable in the UK
- if pension, taxable in UK to the same extent taxable in the USA (i.e. after basis) but also with TA 1988, s 65(2) deduction,  suggest you use SA106 Foreign Income second page, overesas pension two thirds the way down
- in my view there is reason to analyse out which combination of lump sum / annuity you want for least tax and for that you may want a tax planner

I thought that for US tax purposes a distribution from an IRA is never classed as a lump-sum distribution. I don't know how the UK would treat it

There's been several mentions so far of the taxation of 90% of income, or 10% discount, on foreign pensions paid in the UK.

See page FN9 for the start of the conversation, and page FN10 for a discussion on the 90% rule.
http://www.hmrc.gov.uk/worksheets/sa106-notes.pdf

For example, for US Social Security payments paid by US SS in the UK by deposit into a UK bank account, HMRC will tax as follows:
(Ignore exchange rates for this example)
£10,000 paid in the UK (total according to UK tax year). This is the amount that goes into your UK bank account.
The amount taxable by HMRC will be on £9,000 only. This occurs prior to the application of the personal allowance. If I understand correctly, this is only applicable to those individuals who pay UK tax on the arising basis.

I'll leave all discussion of IRAs and how they're taxed to others.

I read sa106-notes.pdf and understand how you claim your 10% deduction if you are filling out the paper form, but I can't figure out how you claim it on-line.

After selecting "Overseas pensions, social security benefits and royalties etc " you are taken to a page which asks to following questions:

a) Your reference for this income:* ____________
b) Country:* ________________
c) Amount of income arising or received before any tax taken off:*£ __________
d) Foreign tax taken off or paid:£ _____________
e) Special Withholding Tax and any UK tax taken off:£ ___________
f )Do you wish to claim foreign tax credit relief?*Please select Yes No

After answering the question it tells you:
Taxable amount:£ x.xx

I could not find anywhere to report or compute the 10% deduction. No where on any of the next pages does it ask about the 10% and it computes your taxes based on the amount you enter in
c) Amount of income arising or received before any tax taken off:

Can I simply report 90% of my IRA distribution rather than the full 100%?

Thanks,
John