# Paying UK Tax on ROTH IRA Withdrawals



## steve8443 (Jun 4, 2010)

Will I have to pay UK Tax on ROTH IRA Withdrawals if I continue to be resident and domiciled in the UK during my retirement?

If "yes" then would I get a UK Tax Credit for the USA taxes I paid at the time (many years earlier) that I converted my IRA funds to my ROTH funds?

If "yes" then should I avoid converting my IRA to a ROTH IRA in USA?

Thanks.


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## Bevdeforges (Nov 16, 2007)

I'm not terribly up to date with these Roth IRAs, but I'd be very wary of converting any standard IRA to a Roth if you are planning on moving overseas for what could be a permanent move.

Most overseas governments don't recognize US IRAs as the sort of tax deferral vehicle they are in the US. Furthermore, there are restrictions on IRAs (from the US side) when you are living overseas, depending on your precise situation - for example, if you are married to a "non-resident alien" and thus file as "married filing separately" you cannot open a Roth IRA at all.

As far as I know (and I'm sure someone here may have better information on this), withdrawals from either an IRA or a Roth IRA are treated by most governments as a "pension" - so check to see what the UK tax rules are for pensions from abroad.
Cheers,
Bev


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## Joppa (Sep 7, 2009)

Bevdeforges said:


> I'm not terribly up to date with these Roth IRAs, but I'd be very wary of converting any standard IRA to a Roth if you are planning on moving overseas for what could be a permanent move.
> 
> Most overseas governments don't recognize US IRAs as the sort of tax deferral vehicle they are in the US. Furthermore, there are restrictions on IRAs (from the US side) when you are living overseas, depending on your precise situation - for example, if you are married to a "non-resident alien" and thus file as "married filing separately" you cannot open a Roth IRA at all.
> 
> As far as I know (and I'm sure someone here may have better information on this), withdrawals from either an IRA or a Roth IRA are treated by most governments as a "pension" - so check to see what the UK tax rules are for pensions from abroad.


Overseas pension is treated as taxable income for those who are deemed resident and ordinarily resident in UK. As a non-UK domiciled, you have the option of being taxed on a remittance basis (only taxed if you actually bring the money over to UK), until you are resident for 7 out of the past 10 years (cumulatively), when an annual charge of £30,000 will be payable to retain your non-dom tax treatment. So until your 7 years are up you can keep your pension income in US and pay for any outgoings there (e.g. when you go home for holidays) and pay no UK tax, or bring it over and be taxed on it. Any UK tax you pay can be set against your US tax liability. You pay no UK income tax for an income up to £6475 if aged under 65, £9490 if aged 65 to 74, and £9640 if you are 75+. For taxable income exceeding £22,900, your age allowance (any allowance above £6475) will be reduced by £1 for every £2 of income. If you earn more than £100k, the whole of your allowance may be lost if you earn £118,980 (65-74) or £119,280 (75+).


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## Bevdeforges (Nov 16, 2007)

Joppa said:


> Overseas pension is treated as taxable income for those who are deemed resident and ordinarily resident in UK. As a non-UK domiciled, you have the option of being taxed on a remittance basis (only taxed if you actually bring the money over to UK), until you are resident for 7 out of the past 10 years (cumulatively), when an annual charge of £30,000 will be payable to retain your non-dom tax treatment. So until your 7 years are up you can keep your pension income in US and pay for any outgoings there (e.g. when you go home for holidays) and pay no UK tax, or bring it over and be taxed on it. Any UK tax you pay can be set against your US tax liability. You pay no UK income tax for an income up to £6475 if aged under 65, £9490 if aged 65 to 74, and £9640 if you are 75+. For taxable income exceeding £22,900, your age allowance (any allowance above £6475) will be reduced by £1 for every £2 of income. If you earn more than £100k, the whole of your allowance may be lost if you earn £118,980 (65-74) or £119,280 (75+).


The complication with these Roth IRAs is that, in the US at least, you pay your tax on the money you put into the fund when it's earned. If you convert a regular IRA (which is a kind of pension savings fund) to one of these Roth IRAs, you have to pay income tax on the funds converted at the time of the conversion (i.e. when the Roth IRA is set up). That way, when you take the money out, it's tax-free in the US at that time.

What I suspect is that you're kind of scr---d if you're living abroad when you start making Roth IRA withdrawals, since they'll be taxed as pensions where you're resident, and you probably will have little or no taxes due in the US to offset the foreign taxes paid. But I'm not sure of that - and have not been able to find any information about withdrawals from Roth IRAs from abroad. Plenty of information on setting them up (the restrictions, etc.).
Cheers,
Bev


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## gldms (Jun 14, 2010)

steve8443 said:


> Will I have to pay UK Tax on ROTH IRA Withdrawals if I continue to be resident and domiciled in the UK during my retirement?
> 
> If "yes" then would I get a UK Tax Credit for the USA taxes I paid at the time (many years earlier) that I converted my IRA funds to my ROTH funds?
> 
> ...


Dear Steve,

You do not have to pay UK tax on a ROTH IRA withdrawal but you will have to pay UK tax on a Traditional IRA withdrawal (See paragraph 1(b) of article 17 of the UK US tax treaty). See also the HMRC website where this is stated explicitly (search under HM Revenue & Customs: Residence and domicile: Frequently Asked Questions(FAQs). (unfortunately I cannot post url's yet as I am new to this forum..) Lump sum distributions from a US pension are only taxed in the US and not in the UK.
This might be relevant if you still have money in a Traditional IRA. Hope that helps.


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## gairloch (Jun 24, 2011)

I ran across this and thought I'd add an update and link from the HRMC website.

US investment and retirement accounts

Q I am US domiciled and have been living in the UK for 10 years. I hold three types of investment accounts in the US: a brokerage account and two different retirement accounts. My first retirement account is called a Roth IRA, similar to an ISA in that it grows tax free forever and you are not taxed in the US when you withdraw from it during retirement. The other account is called a Traditional IRA which is similar to a UK personal pension in that growth is tax deferred, ie you only pay tax on the income that you take from it during retirement. The third type of account that I hold is a standard brokerage account, ie stocks, mutual funds (similar to unit trusts), etc. I will not be making withdrawals from these accounts until I am retired.
Can you confirm whether these US retirement vehicles will be subject to UK tax?

A The tax treatment is different for the IRAs and the brokerage account.

Brokerage account - any income and gains from this investment will be taxed on the arising basis, unless you make a claim for the remittance basis to apply, in which case you will only be taxed on sums remitted to the UK.

IRAs - the UK/US Double Tax convention was amended in 2003 which made significant changes to the treatment of pensions (Article 17 of the convention). These comments apply to the UK tax years from 2003-04.

Roth IRA - paragraph 1(b) of article 17 provides for a distribution to be exempt from tax in the UK to the extent that it would be exempt in the US. This means that withdrawals from this IRA should be exempt from UK tax.

Traditional IRA - the UK treatment follows the US treatment: sums are taxed on withdrawal. But, of course, if you make a claim for the remittance basis to apply you will only be taxed on sums remitted to the UK.


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