I've two questions for my US/UK taxes. I am a US citizen (also and EEA citizen) and resident in the UK. I am under retirement age.
For '13-'14 I've filled out tax forms for my part year residency (which worked out nicely as I didn't start working in the UK until after the '13-'14 tax year started). For that I have a question on a 401k cash out. I cashed out a good chunk of a 401k and rolled a portion of it into an IRA. Should I have declared this in the UK? It was fully taxed in the US so at the time I considered it a lump sum and, as I wasn't working until a month later in the UK after the cash out, I didn't even consider the possibility I would need to declare it to the UK.
Transferring money from a 401k plan to an IRA is not a taxable event in the US or the UK as long as you follow the IRS rollover rules.
For '14-'15 I took an early withdrawal from my IRA and there was 20% withheld on it. When I did my taxes for the US this year I used turbotax and filled in the 1099-R which kept the US tax plus the 10% early withdrawal fee.
Note I did not take the full amount of the IRA but it was almost half (it's a small IRA account and had about 18k of which I took 8k and left the rest). I'm not planning on touching the rest and am unsure if this counts as a lump sum (to me lump sum implies it all gets withdrawn at once).
Now I am looking at my UK '14-'15 self assessment and think I will need to declare this and incur some UK tax as well. Do I claim tax credit for this for the US tax withheld? Also, is the IRA distribution considered income or pension for the Foreign form?
I am uncertain as to whether a single amount taken form an IRA is seen as a lump sum. If it is then for you it would only be taxable in the US (assuming the UK does not apply the treaty saving clause)
Thanks in advance! I'm thinking I will need to sit down with a good US/UK tax advisor soon.
On Edit, this is what I believe is correct:
401k - Tax treaty article 17 p2 - Taxed by the US only, I do not have to declare it to the UK (this bit I am not 100% sure of - I may have to declare it to the UK and claim tax treaty)
If it was a US qualified rollover from a 401k to and IRA there's no UK tax as Article 18.1 is relevant
IRA - if it is considered a lump sum also tax treaty 17 p2 and must declare it to the UK. Two thoughts on this - it is a lump sum unless I were to withdraw further from it or it is not a lump sum and I have to either amend my US tax return or claim FTC on my SA.
If it's a lump sum it's only US taxable.....no UK tax filing required. If its classed as regular income then you must pay UK tax on the money if you are taxed on your worldwide income by HMRC or you bring the money into the UK.
I also have to declare to the UK I have an IRA and tax treaty article 18.
You can tell HMRC about your IRA or other US retirement accounts and claim tax treaty exemption from UK tax on any gains under Article 18
Further in the US I should have deducted my UK pension contributions (though I will call the IRS on this since I think I can just start doing this for next year) and again tta 18.
If you are contributing to a UK pension you can make those contributions on a US tax deferred basis by invoking the treaty or you can pay tax on the contributions now and build up a US tax free basis in your UK pension.
