401(k) Distribution into U.S. Bank - What Exchange Rate to Use

I’m in the process of organizing regular periodic distributions from my 401(k). A one times annual payment will be made directly into my U.S. bank account and I’ll then transfer to the U.K. The transfer will be either the whole amount in one go, or varying amounts at different times through the year.

I wanted to ask:

Do you have to use the HMRC exchange rate to convert from USD to GBP, or can I use the IRS/Treasury rate? (For self-assessment)?

Would the whole amount be converted to GBP on the day it lands into my U.S. account, or just use the amount that physically shows in my U.K. account, (after transfer) as the amount for self-assessment?

I’m U.K. Resident

Thanks

The day the amount is distributed to your US bank is the taxable event, not some later date when you move it to the UK. This is assuming you are being taxed on an arising basis which is the norm for most of us.

I use the published HMRC exchange rate for the month my US distributions occur, whether it be my monthly US pension payment or quarterly dividend distribution etc.

If you Google HMRC exchange rates you will find the monthly rates.

https://www.gov.uk/government/publications/hmrc-exchange-rates-for-2021-monthly

The day the amount is distributed to your US bank is the taxable event, not some later date when you move it to the UK. This is assuming you are being taxed on an arising basis which is the norm for most of us.

I use the published HMRC exchange rate for the month my US distributions occur, whether it be my monthly US pension payment or quarterly dividend distribution etc.

If you Google HMRC exchange rates you will find the monthly rates.

https://www.gov.uk/government/publications/hmrc-exchange-rates-for-2021-monthly

Thanks...

I guess that if you have monthly U.S. sourced income, you could use the HMRC average exchange rate, rather then working out on a monthly basis?

Certainly with the 401(k) distributions, there is a 'Wire fee' and other fees taken out. A thought being the 1099 amount and amount physically received would differ. What amount would you convert for Self Assessment purposes? I'm guessing the actual amount received after fees etc.

Thanks...

I guess that if you have monthly U.S. sourced income, you could use the HMRC average exchange rate, rather then working out on a monthly basis?

Certainly with the 401(k) distributions, there is a 'Wire fee' and other fees taken out. A thought being the 1099 amount and amount physically received would differ. What amount would you convert for Self Assessment purposes? I'm guessing the actual amount received after fees etc.

I'm sure the annual HMRC average exchange rate is acceptable for regular periodic payments such as my monthly deposits from my US pensions but since my wife and I also have quarterly and year end distributions plus we sell some shares each year keeping below the cap gains tax free allowance I keep a spreadsheet anyway where I record the monthly HMRC rate alongside my payments received in $'s to convert to £'s so it is no big deal for me. I don't bother to calculate which is better as I expect some years I would be better off monthly and some years better off annually (only for the regular pension payments)

Any fees incurred on transferring the money to the UK is not, I believe, deductible but I doubt HMRC will look that closely plus the accounting may be difficult.  If you do an HSBC to HSBC transfer for example no fees are listed at all but the exchange rate is much worse than Wise.  I use Wise to transfer our money but I don't do a transfer for every payment I receive, I let them accumulate and do the transfers when I'm ready in larger chunks which reduces the overall fees.

The fees are U.S. domestic. The 401(k) provider 'wires' the distribution to my U.S. bank, which incurs a domestic wire fee x2. Firstly the provider takes a $25 slice and an additional 'payment fee'. Then the bank nickel and dimes me again for an 'incoming domestic wire'. I know I can't do anything about the banks fee, but as the 1099 will always show more then the $ amount deposited, I wasn't sure if I can use the lower deposited figure for my SA100, or keep to the higher 1099 amount. This is one of the reasons I went for a single annual payment, to keep fees down. Weirdly they won't do a nice ACH (and free) transfer, but will do for an IRA... I use Wise on the Transatlantic transfer...

The fees are U.S. domestic. The 401(k) provider 'wires' the distribution to my U.S. bank, which incurs a domestic wire fee x2. Firstly the provider takes a $25 slice and an additional 'payment fee'. Then the bank nickel and dimes me again for an 'incoming domestic wire'. I know I can't do anything about the banks fee, but as the 1099 will always show more then the $ amount deposited, I wasn't sure if I can use the lower deposited figure for my SA100, or keep to the higher 1099 amount. This is one of the reasons I went for a single annual payment, to keep fees down. Weirdly they won't do a nice ACH (and free) transfer, but will do for an IRA... I use Wise on the Transatlantic transfer...

I’m pretty sure that the domestic wire fees can’t be deducted from your US taxes either, the figures on your 1099-R will be what is taxable by the IRS and HMRC.  Your domestic wire fees sound very severe, we’ve never had that, but then again we have never made distributions from a 401k provider. The year after each of us retired we rolled our 401ks to an IRA in a low cost large brokerage firm. (Rollovers are tax free). Fidelity for my wife and Vanguard for me. Both these brokerages offer ACH  transfers to our US bank from the IRAs for free. Vanguard now offers wire transfers for fee and our bank does not charge for incoming wires so these days I choose to wire the money from Vanguard since it is faster. Before we moved back to England my wife moved her IRAs from Fidelity to Vanguard so we now both have accounts with Vanguard.

I'll have two 1116 baskets. Re-sourced by Treaty for the 401(k) and 1116 passive for U.K interest income etc. So looking at the 401(k) and the resourced by Treaty 1116.

I can use the HMRC monthly exchange rate for my SA100 on the gross income (401(k), so far so good. Then would you use the same HMRC exchange rate to back work to get the dollar amount of tax paid to HMRC on the 401(k) for the 1116 (Re-sourced by Treaty), or use a seperate IRS exchange rate?

I use the Treasury/IRS exchange rate for U.K interest income etc, (passive 1116). But then I'd need to use the HMRC rate for the 1116 (Re-sourced by Treaty).

I'm thinking keeping to the one exchange rate for the entire 1116 re-sourced category would be best rather then using two. I'd be interested to know what others do and the exchange rate source under these circumstances. Also, is it mandatory to use the HMRC exchange rate for Self Assessment, or can you use the IRS rate for everything to keep things uniformed?

Thanks

I'll have two 1116 baskets. Re-sourced by Treaty for the 401(k) and 1116 passive for U.K interest income etc. So looking at the 401(k) and the resourced by Treaty 1116.

I can use the HMRC monthly exchange rate for my SA100 on the gross income (401(k), so far so good. Then would you use the same HMRC exchange rate to back work to get the dollar amount of tax paid to HMRC on the 401(k) for the 1116 (Re-sourced by Treaty), or use a seperate IRS exchange rate?

I use the Treasury/IRS exchange rate for U.K interest income etc, (passive 1116). But then I'd need to use the HMRC rate for the 1116 (Re-sourced by Treaty).

I'm thinking keeping to the one exchange rate for the entire 1116 re-sourced category would be best rather then using two. I'd be interested to know what others do and the exchange rate source under these circumstances. Also, is it mandatory to use the HMRC exchange rate for Self Assessment, or can you use the IRS rate for everything to keep things uniformed?

Thanks

I honestly don’t know if there is a correct answer, except to keep the documentation of which rates you use in case of questions by HMRC or the IRS. Other than the average annual IRS average rate issued Dec 31st each year  I don’t know if the IRS has any publicized rates month to month.  When living in the US and doing my taxes I did have income from a UK pension which was periodic so used the annual rate. For non periodic income I used XE.com as per one of the sources on their website.

Currency Exchange Rates
An exchange rate is the rate at which one currency may be converted into another, also called rate of exchange of foreign exchange rate or currency exchange rate. Below are government and external resources that provide currency exchange rates.

Note: The exchange rates referenced on this page do not apply when making payments of U.S. taxes to the IRS. If the IRS receives U.S. tax payments in a foreign currency, the exchange rate used by the IRS to convert the foreign currency into U.S. dollars is based on the date the foreign currency is converted to U.S. dollars by the bank processing the payment, not the date the foreign currency payment is received by the IRS.

Governmental Resources
Treasury Department's Currency Exchange Rate
Federal Reserve Bank
U.S. Department of Agriculture
External Resources
Oanda.com
xe.com
x-rates.com

I also am interested in hearing what others have to say.

I may call HMRC closer to the time and ask if another exchange rate option is acceptable. I'd really like to use the average IRS rate and also use that for the 1116 resourced income for the tax paid to HMRC. HMRC will allow tax payments via direct debit, so using the same average exchange rate as I currently do with the passive 1116 would make life so much easier.

After some searching I see HMRC average exchange rate. Ultimately I can use this for the IRS side as it does allow 'Governmental Resources' I see as part of the IRS acceptable list.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/949747/Average_for_the_year_to_31_December_2020.csv/preview