# Taxation of Deferred Compensation Plans



## reliy888

Hi, I'm planning on renouncing my US citizenship and retiring in the UK. I've been looking into the process, including the expatriation tax topic.

From what I understand, pension plans, such as 401K, annuities, IRAs are treated as eligible deferred compensation plans. As such they incur a 30% withholding tax that will be withheld at source by the Payor. In addition, you forfeit any double taxation treaty alternatives to this withholding tax that may otherwise apply.

I was wondering if anyone knew, in terms of UK tax, how any withdrawals from these plans would be treated. I assume the money would be treated as income in the UK as well and subject to income tax in the UK. 

Is it possible to get a foreign tax credit in the UK to reduce the UK income tax based upon the withholding tax paid in the US? 

thanks,


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## Bevdeforges

You may want to check, but a valid case can be made for the notion that withdrawals from an IRA or other deferred tax plan are actually transfers of capital and not income at all (at least not for a tax jurisdiction outside the US). In theory, taxes were due on the money put into the IRA back when you earned the income and put it into the fund. Same goes for the interest that has accrued in the fund.

The taxes due are actually back taxes payable to the IRS. (And that 30% withholding can be moderated if you file a NR tax return, claiming back the excess taxes.) The only claim on the IRA funds should be perhaps declaration and payment of tax on the current interest paid into the fund (i.e. after you become UK tax resident). 
Cheers,
Bev


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