Tax on UK Flexible Drawdown Pension for US Resident
Published / Last Updated on 21/02/2018
What tax is payable on a UK flexible drawdown pension in the US? Video explores the taxation of UK flexible drawdown pension lump sums for USA residents with UK pension.
We are UK authorised advisers and not authorised to give US tax or financial planning advice. We handle the UK pension and Tax side but you will need to take advice locally in the US before any actions with your pensions are taken.
US/UK Tax Treaty
- Article 17.1.(a) states that pensions and other similar remuneration for a resident of a Contracting State shall be taxable only in that State.
- Article 17.1.(b) states that any such pension or remuneration paid from a pension scheme established in the other Contracting State that would be exempt from taxation in that other State if the beneficial owner were a resident thereof shall be exempt from taxation in the first-mentioned State. (i.e. 25% lump sum is tax free in UK so should be tax free in US).
BUT
- Article 17.2 states "Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State."
After any 25% Tax Free Lump Sum, HMRC CLASSES FLEXIBLE PENSION DRAWDOWN AS LUMP SUM WITHDRAWALS AND NOT PENSION INCOME AND SO TAXES IT IN UK under 17.2. HMRC does not issue an NT (nil tax in UK) code for Flexible Pension Drawdown.
