Foreign Pension Scheme

I remember reading in the DTA that for 401K, IRA, etc., you don't report to HMRC until you have a disbursement. For once, my memory is clear on a fact!

The treaty is elective. If one is on the arising basis and wishes to elect into the treaty to claim that income and gains during the growth period are not UK taxable; this election would need to be made on each UK return.

In summary, income payments for non-UK pension arrangements are disclosable as foreign income and are taxable in the UK for UK residents.

The position on lump sum payments is more complex. Cmoh, you linked to an HMRC webpage about their taxation. The UK domestic rules were changed from 6 April 2017. Excluding the (rare) types of non-UK pension arrangements where there was tax relief on contributions, lump sum payments from foreign pension arrangements are not taxed in the UK provided that the whole of the value relates to contributions made before 6 April 2017. Any post 6 April 2017 element of the lump sum (which will be increasingly important in future years) will be taxable. This would be purely under UK domestic tax rules, and if there is any taxable element a claim could be made under the UK US double tax treaty.

Is a trustee to trustee transfer after 6 April 2017 within the United States taxable under UK domestic rules?

Thanks for the warning.

I have 2 US private pensions and 2 much smaller UK pensions. The PAYE taken last year from one of the pensions only was no where close to covering what was owed in taxes to HMRC and I was surprised to see that this year’s PAYE coming out of my UK pension has been cut by a third. (This is the first pension payment of the 2018/19 tax year). Thinking about it I guess they must be happy with the up front amount I paid on January 31st for this coming tax year and assume I will pay the next payment due on July 31st.

For folks with simpler tax conditions, HMRC tax calculations can be done on the back of a fag packet. I always have a spreadsheet for the upcoming UK tax year which calculates what tax will be due (estimated), and whether I will be underpaying or overpaying (usually it's underpaying since HMRC are quite happy to use the 31 Jan and 31 July payment method - a warning). Of course they have absolutely no concern as to how this may affect US tax liabilities. HMRC underpayments may be handled easily (possibly overlooked on the US return), but HMRC overpayments can result in IRS figures being wrong, which requires rectification. We could get into a discussion as to the need to rectify if US tax results in excess credits via 1116, and the IRS statement about not filing 1040X if there is no change in tax due, but, 1116 instructions require rectification. The consequences could result in one spending 50% of their life doing tax returns. Great for the professional tax preparers, but not for us common folk.

.... The PAYE taken last year from one of the pensions only was no where close to covering what was owed in taxes to HMRC and I was surprised to see that this year’s PAYE coming out of my UK pension has been cut by a third.

From experience, this will be the HMRC computers applying the new increased Personal Allowance to this pension only, and ignoring other earned income (foreign pensions). Not a problem for the 1116 accrued basis filer, but something to be aware of for the 1116 paid basis filer wanting to keep HMRC deductions closer in line with a certain tax year.