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Tax Accountant Addresses HMRC Nudge Letters Over US Pension...

Tax Accountant warns that HMRC’s Nudge Letters question foreign tax credits on US pensions, risking double taxation for Americans in the UK, requiring professional advice. Birmingham, West Midlands, United Kingdom, 24th Jan 2025 – Tax Accountant, a leading advisory firm specializing in cross-border taxation, today raised concerns about the recent wave of “Nudge Letters” issued by HM Revenue & Customs (HMRC) to US citizens residing in the United Kingdom. These letters—sent as part of HMRC’s ongoing compliance efforts—question the foreign tax credits some taxpayers claim for US taxes paid on various pension distributions.The firm warns that many individuals could face unexpected tax bills or double taxation if their claims for relief are denied. Under the UK-US Double Taxation Treaty, US citizens living in the UK may be entitled to offset UK tax on foreign income with credit for taxes already paid in the United States. However, confusion surrounding the classification and tax treatment of different US pension types seems to be driving the recent scrutiny.Common Types of US Pensions401(k) Plans – Employer-sponsored retirement accounts that typically require distributions to be taxed in the US; UK residents may also owe UK tax on these amounts and claim credits to avoid double taxation.Traditional IRAs – Similar to 401(k) in tax treatment, withdrawals are generally taxable in both the US and the UK, subject to available treaty reliefs.Roth IRAs—Qualified distributions (if certain conditions are met) are not taxed in the US, but in some cases, they may still be subject to UK tax.US Social Security – Under the US-UK treaty, the UK, not the US, generally has the right to tax social security benefits if you are a UK resident, although specific circumstances can vary.While some pensions (e.g., qualifying Roth IRA distributions) may not incur a US tax charge, HMRC may still assess UK tax on those amounts, leading to complications in claiming foreign tax credits or relief.“As HMRC ramps up its compliance campaign through ‘Nudge Letters,’ US citizens in the UK must revisit their ‘UK tax on Foreign Income’ calculations to ensure they’re applying for the correct foreign tax credits,” says Mr Aatif Malik, Managing Director at Tax Accountant. “We are witnessing a growing trend of individuals being incorrectly denied the opportunity to offset UK tax with the US tax already paid on their pensions. Taxpayers must seek professional advice to avoid double taxation and respond appropriately to these ‘Nudge Letters.’”Recommendations for Affected TaxpayersReview Your Treaty Position: Check whether you have properly applied the provisions of the UK-US Double Taxation Treaty to your pensions.Identify Taxable vs. Non-Taxable Pensions: Establish which types of pensions (e.g., Roth IRAs vs. Traditional IRAs) might still be taxable in the UK, even if no tax is due in the US.Maintain Accurate Documentation: Keep detailed records of pension distributions and any taxes paid in the US, along with official statements that outline the nature and timing of these payments.For further information or to schedule an interview with Mr. Malik, please contact:Tax AccountantPhone: 0800 135 7323Email: info@taxaccountant.co.ukAbout Tax AccountantTax Accountant is a premier tax advisory firm specializing in cross-border taxation and compliance. With decades of combined experience, our experts navigate complex international tax treaties to provide tailored solutions that help individuals and businesses meet their obligations across multiple jurisdictions. Media Contact Organization: Tax Accountant Contact Person: Aatif Malik Website: https://www.taxaccountant.co.uk/ Email: Send Email Contact Number: +448001357323 Address:3 Brindley Place City: Birmingham State: West Midlands Country:United Kingdom Release id:22911