More Thoughts on UK Pensions – 2021
Please visit our podcast section on our website htj.tax as we have conversations with interesting thinkers such as Harvard educated fund manager Daniel Yearwood
Now, we have previously written about UK pensions https://htj.tax/?s=uk+isa
Recently we have been asked – “ Are you able to confirm whether or not a UK PCLS is taken tax-free in the US? I’m seeing loads of conflicting answers online as some believe it is not taxed at a Federal level but may be taxed at State level?”
Our thoughts on this controversial area were expressed here - https://htj.tax/2020/10/us-taxation-of-uk-pension-plans/
Another question – “What about SIPPs”
With regards to SIPPs, many providers employ a trust structure, which as mentioned in reportable. As to whether it is taxable? It will only receive protection under the tax treaty if it is “wrapped” as a pension plan in the UK, meaning it complies with certain rules. However, there are rare situations where it's more tax efficient to NOT invoke the tax treaty. If you do invoke the treaty then contributions and gains will not be taxed until distribution. If you do not, then contributions and gains are taxable, but you may get a Foreign Tax Credit on your US taxes. Lastly, there is the issue of US states. This could, for instance, mean that dividends within a SIPP are subject to state taxes – even if they are exempt at the federal level because tax treaties are Federal not state level.
Please contact your preferred US tax professional for guidance