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    • hparker
    • By hparker 11th Oct 18, 3:11 PM
    • 5Posts
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    hparker
    Expat SIPP withdrawals
    • #1
    • 11th Oct 18, 3:11 PM
    Expat SIPP withdrawals 11th Oct 18 at 3:11 PM
    My situation may be unusual but I hope I can let some ideas here. I will try to get full advice from a UK IFA before I do anything but I would need to return to the UK for that (as rules limit advice that can be given). So in the meantime I would like to ask for some help here.

    I have Vanguard funds in an ISA (150,000) and a SIPP (200,000) both started when I was in the UK and 500,000 in a normal dealing account.

    In my tax residency investments held for 36 months can be sold tax free. All dividend income is taxable. So if/when I decide to sell any units in either my ISA, SIPP, or dealing account, all would be taxed the same way (i.e. no tax due). As I am not tax resident in the UK I don’t believe I would pay any tax on gains or dividend income from ISA, SIPP, or dealing accounts.

    If all my investments will be taxed the same (nil), I planned to take income by selling/withdrawing funds in the following order: dealing account, then if/when this was exhausted, from the SIPP, then if/when the SIPP is exhausted finally the ISA. If I return or become subject to UK tax in future, then having the ISA and SIPP would offer more tax efficient sources of income. But I also want to consider which pots can be most tax efficiently passed on to spouse and/or children (from a UK tax position) when deciding which order to deplete them.

    Two questions about this:

    Is the order I suggest withdrawing/depleting my various investment “pots” OK, should the SIPP be last, or some other order?

    If I start withdrawing from the SIPP (while not UK tax resident) any option would be tax free now, so which of the array of options (“drawdown” “UFPLS”, etc.) would it be best to have done if I later returned or became UK tax resident in future?

    Thank you for reading.
    Last edited by hparker; 11-10-2018 at 3:13 PM.
Page 1
    • FatherAbraham
    • By FatherAbraham 11th Oct 18, 8:38 PM
    • 903 Posts
    • 668 Thanks
    FatherAbraham
    • #2
    • 11th Oct 18, 8:38 PM
    • #2
    • 11th Oct 18, 8:38 PM
    My situation may be unusual but I hope I can let some ideas here. I will try to get full advice from a UK IFA before I do anything but I would need to return to the UK for that (as rules limit advice that can be given). So in the meantime I would like to ask for some help here.

    I have Vanguard funds in an ISA (150,000) and a SIPP (200,000) both started when I was in the UK and 500,000 in a normal dealing account.

    In my tax residency investments held for 36 months can be sold tax free. All dividend income is taxable. So if/when I decide to sell any units in either my ISA, SIPP, or dealing account, all would be taxed the same way (i.e. no tax due). As I am not tax resident in the UK I don’t believe I would pay any tax on gains or dividend income from ISA, SIPP, or dealing accounts.

    If all my investments will be taxed the same (nil), I planned to take income by selling/withdrawing funds in the following order: dealing account, then if/when this was exhausted, from the SIPP, then if/when the SIPP is exhausted finally the ISA. If I return or become subject to UK tax in future, then having the ISA and SIPP would offer more tax efficient sources of income. But I also want to consider which pots can be most tax efficiently passed on to spouse and/or children (from a UK tax position) when deciding which order to deplete them.

    Two questions about this:

    Is the order I suggest withdrawing/depleting my various investment “pots” OK, should the SIPP be last, or some other order?

    If I start withdrawing from the SIPP (while not UK tax resident) any option would be tax free now, so which of the array of options (“drawdown” “UFPLS”, etc.) would it be best to have done if I later returned or became UK tax resident in future?

    Thank you for reading.
    Originally posted by hparker
    No, you exhaust the SIPP first, because pension downdraws are taxable income in thr UK.

    Ensure you get all the capital out of the pension before becoming resident in the UK again.

    Your general investment account (GIA) and ISA's capital are regarded as already having been taxed, so all withdrawals are tax free, just like taking cash out of an ATM is tax free.

    Exhaust the GIA before the ISA, since the ISA's income would be tax free if you return to the UK.

    Remember to realise all capital gains in the GIA before becoming UK tax resident again.
    Last edited by FatherAbraham; 11-10-2018 at 9:19 PM. Reason: + suggest to draw pension down entirely before return to UK tax residence
    Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...
    THE WAY TO WEALTH, Benjamin Franklin, 1758 AD
    • hparker
    • By hparker 11th Oct 18, 9:33 PM
    • 5 Posts
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    hparker
    • #3
    • 11th Oct 18, 9:33 PM
    • #3
    • 11th Oct 18, 9:33 PM
    No, you exhaust the SIPP first, because pension downdraws are taxable income in thr UK.

    Your general investment account (GIA) and ISA's capital are regarded as already having been taxed, so all withdrawals are tax free, just like taking cash out of an ATM is tax free.

    Exhaust the GIA before the ISA, since the ISA's income would be tax free if you return to the UK.

    Remember to realise all capital gains in the GIA before becoming UK tax resident again.
    Originally posted by FatherAbraham
    So withdraw from the SIPP first! Not what I expected!

    Is the point here that all gains in the GIA and ISA have already been "taxed" (at 0%) by my current tax regime, so whatever the GIA and ISA portfolio balances upon becoming UK tax resident all can be withdrawn at any time tax free? Only any additional new gains within each would be subject to UK capital gains tax? Is this it?

    Any capital gains in the SIPP will also have been "taxed" (at 0%) by my current tax regime. So why would any drawdowns (is that the same as withdrawals - selling fund units for cash to withdraw?) be taxable back in the UK? Why would it not be just any new gains made on the value of the SIPP after being UK tax resident that are subject to capital gains?

    If the SIPP is to be depleted first, then GIA, and lastly ISA, is that also the best order for inheritance tax purposes for inheritenace to spouse or children? I want to consider this as well.
    • bostonerimus
    • By bostonerimus 12th Oct 18, 12:51 AM
    • 2,368 Posts
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    bostonerimus
    • #4
    • 12th Oct 18, 12:51 AM
    • #4
    • 12th Oct 18, 12:51 AM
    You need to look at the relevant tax treaty. Even if you are a UK non-resident for tax purposes, HMRC will still tax UK source income, from things like pensions. You can often avoid UK tax if there is a tax treaty in place. So the critical question is where are you tax resident?
    Last edited by bostonerimus; 12-10-2018 at 12:57 AM.
    Misanthrope in search of similar for mutual loathing
    • Johnnyboy11
    • By Johnnyboy11 12th Oct 18, 6:02 AM
    • 43 Posts
    • 33 Thanks
    Johnnyboy11
    • #5
    • 12th Oct 18, 6:02 AM
    • #5
    • 12th Oct 18, 6:02 AM
    You can only pay into a SIPP if UK resident, and you get basic rate tax relief automatically (and also higher rate tax relief if applicable, by application to HMRC). It follow therefore that you didn't pay UK tax on your UK earnings whilst building up your SIPP and it is reasonable therefore to pay income tax when you withdraw it in retirement (25% of which is income tax free, as an incentive to save for retirement).


    The only exception to this is that you can pay 3,600 gross into a SIPP as an expat in the tax-year that you leave the UK and for the following 5 tax-years. If someone paid more than 3,600 into a SIPP whilst an expat, then they would have a problem with HMRC...
    • hparker
    • By hparker 12th Oct 18, 6:37 AM
    • 5 Posts
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    hparker
    • #6
    • 12th Oct 18, 6:37 AM
    • #6
    • 12th Oct 18, 6:37 AM
    Quick replies:
    bostonerimus, Yes there is a double taxation treaty, and as I said at the top I am not UK resident for tax.

    You can only pay into a SIPP if UK resident, and you get basic rate tax relief automatically (and also higher rate tax relief if applicable, by application to HMRC). It follow therefore that you didn't pay UK tax on your UK earnings whilst building up your SIPP and it is reasonable therefore to pay income tax when you withdraw it in retirement (25% of which is income tax free, as an incentive to save for retirement).

    The only exception to this is that you can pay 3,600 gross into a SIPP as an expat in the tax-year that you leave the UK and for the following 5 tax-years. If someone paid more than 3,600 into a SIPP whilst an expat, then they would have a problem with HMRC...
    Originally posted by Johnnyboy11
    I don't get the point about me "not paying tax on your UK earnings whilst building up my SIPP". I was paying tax on my UK earnngs when I was UK tax resident and paid into my SIPP years ago. Obviously no more contributions into the SIPP since I left the UK.

    Can you clarify whether there is still a point here which is relevant to me?

    No, you exhaust the SIPP first, because pension downdraws are taxable income in thr UK.

    Ensure you get all the capital out of the pension before becoming resident in the UK again.

    Your general investment account (GIA) and ISA's capital are regarded as already having been taxed, so all withdrawals are tax free, just like taking cash out of an ATM is tax free.

    Exhaust the GIA before the ISA, since the ISA's income would be tax free if you return to the UK.

    Remember to realise all capital gains in the GIA before becoming UK tax resident again.
    Originally posted by FatherAbraham
    I'd like to ask this again as it got missed with the previous replies:

    So withdraw from the SIPP first! Not what I expected!

    Is the point here that all gains in the GIA and ISA have already been "taxed" (at 0%) by my current tax regime, so whatever the GIA and ISA portfolio balances upon becoming UK tax resident all can be withdrawn at any time tax free? Only any additional new gains within each would be subject to UK capital gains tax? Is this it?

    Any capital gains in the SIPP will also have been "taxed" (at 0%) by my current tax regime. So why would any drawdowns (is that the same as withdrawals - selling fund units for cash to withdraw?) be taxable back in the UK? Why would it not be just any new gains made on the value of the SIPP after being UK tax resident that are subject to capital gains?

    If the SIPP is to be depleted first, then GIA, and lastly ISA, is that also the best order for inheritance tax purposes for inheritenace to spouse or children? I want to consider this as well.
    Last edited by hparker; 12-10-2018 at 6:42 AM.
    • FatherAbraham
    • By FatherAbraham 12th Oct 18, 6:49 AM
    • 903 Posts
    • 668 Thanks
    FatherAbraham
    • #7
    • 12th Oct 18, 6:49 AM
    • #7
    • 12th Oct 18, 6:49 AM
    So withdraw from the SIPP first! Not what I expected!

    Is the point here that all gains in the GIA and ISA have already been "taxed" (at 0%) by my current tax regime, so whatever the GIA and ISA portfolio balances upon becoming UK tax resident all can be withdrawn at any time tax free? Only any additional new gains within each would be subject to UK capital gains tax? Is this it?

    Any capital gains in the SIPP will also have been "taxed" (at 0%) by my current tax regime. So why would any drawdowns (is that the same as withdrawals - selling fund units for cash to withdraw?) be taxable back in the UK? Why would it not be just any new gains made on the value of the SIPP after being UK tax resident that are subject to capital gains?

    If the SIPP is to be depleted first, then GIA, and lastly ISA, is that also the best order for inheritance tax purposes for inheritenace to spouse or children? I want to consider this as well.
    Originally posted by hparker
    Pension funds contain untaxed income, in the UK regime. Tax relief is granted on the way in, everything is income-taxed on the way out (except for a 25% lump sum on benefit crystallization). But you might be able to take 100% tax free (bear in mind what has been said about dual-taxation treaty), by drawing down outside the UK tax regime.

    For the purposes of this discussion, to draw down means to take assets out of the pension tax-wrapper, to withdraw assets from it. Note that Usonians, in their quaint, colonial way, use "drawdown" to mean a fall in the market value of assets.

    GIA assets would be liable to capital gains tax if disposed of while UK tax resident. That means they look at the difference between acquisition cost and disposal proceeds. Therefire it is essential that you dispose of those assets before re-entering UK tax residence, in order to realise gains tax-free. After selling, you can repurchase the assets, which now have a higher base cost for CGT purposes.

    ISA is free from UK CGT and income tax. To every other tax regime, it looks like a GIA, since ISAs are a particular UK wierdness, not covered by any taxation treaty.

    I haven't even bothered to think about your inheritance tax issues - you need to get the taxation position of your personal assets straight before you worry about your heirs.
    Last edited by FatherAbraham; 12-10-2018 at 6:55 AM.
    Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...
    THE WAY TO WEALTH, Benjamin Franklin, 1758 AD
    • hparker
    • By hparker 12th Oct 18, 7:54 AM
    • 5 Posts
    • 6 Thanks
    hparker
    • #8
    • 12th Oct 18, 7:54 AM
    • #8
    • 12th Oct 18, 7:54 AM
    Pension funds contain untaxed income, in the UK regime. Tax relief is granted on the way in, everything is income-taxed on the way out (except for a 25% lump sum on benefit crystallization). But you might be able to take 100% tax free (bear in mind what has been said about dual-taxation treaty), by drawing down outside the UK tax regime.

    For the purposes of this discussion, to draw down means to take assets out of the pension tax-wrapper, to withdraw assets from it. Note that Usonians, in their quaint, colonial way, use "drawdown" to mean a fall in the market value of assets.

    GIA assets would be liable to capital gains tax if disposed of while UK tax resident. That means they look at the difference between acquisition cost and disposal proceeds. Therefire it is essential that you dispose of those assets before re-entering UK tax residence, in order to realise gains tax-free. After selling, you can repurchase the assets, which now have a higher base cost for CGT purposes.

    ISA is free from UK CGT and income tax. To every other tax regime, it looks like a GIA, since ISAs are a particular UK wierdness, not covered by any taxation treaty.

    I haven't even bothered to think about your inheritance tax issues - you need to get the taxation position of your personal assets straight before you worry about your heirs.
    Originally posted by FatherAbraham
    Thank you for following up on this. So let me see if I have this right. Upon becoming UK tax resident:

    1. Any income withdrawn from a GIA is subject to Capital Gain Tax only. It is not also subject to Income Tax. So before becoming UK resident it makes sense to sell all GIA funds and repurchase, to lock in any gains. Only new gains made after UK residency will be taxable and the tax applied is CGT.

    2. In the UK the SIPP will not be subject to Capital Gains Tax, but will be subject to income tax on any thing withdrawn (after the 25% tax free sum is taken). So if it is necessary to withdraw income from any of the pots while non-UK resident, it is best to deplete the SIPP first.

    3. The ISA will not be subject to CGT or income tax in the UK, so it is best left to accummulate as long as possible, and withdraw from SIPP and GIA first.

    So, would it also make sense (as gains are nil in my current tax regime) to sell all funds in my SIPP to lock in gains and repurchase them in a GIA before being UK resident?

    If "yes" to the above, I will no longer have a SIPP investments. So before doing that, can anyone say what I would be missing out on? Is there no advantage to having investments in a SIPP after drawdown? Any possible benefits to spouse or heirs with SIPPs compared to GIA or ISA?

    Thank you again for all the replies.
    • bostonerimus
    • By bostonerimus 12th Oct 18, 1:20 PM
    • 2,368 Posts
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    bostonerimus
    • #9
    • 12th Oct 18, 1:20 PM
    • #9
    • 12th Oct 18, 1:20 PM
    Quick replies:
    bostonerimus, Yes there is a double taxation treaty, and as I said at the top I am not UK resident for tax.
    Originally posted by hparker
    OK what county are we talking about. I ask as it's vital to you taxation. As an example if you were living in Thailand that treaty has no provision for pensions so your UK SIPP withdrawals would be fully taxed in the UK. The treatment of UK sourced GIA dividends and gains and the ISA will also be dictated by the treaty and UK and country of residence local taxation.
    Last edited by bostonerimus; 12-10-2018 at 1:34 PM.
    Misanthrope in search of similar for mutual loathing
    • TBC15
    • By TBC15 12th Oct 18, 1:51 PM
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    TBC15
    OK what county are we talking about. I ask as it's vital to you taxation. As an example if you were living in Thailand that treaty has no provision for pensions so your UK SIPP withdrawals would be fully taxed in the UK. The treatment of UK sourced GIA dividends and gains and the ISA will also be dictated by the treaty and UK and country of residence local taxation.
    Originally posted by bostonerimus
    He still gets his personal tax allowance if he still holds a UK passport I think.
    • bostonerimus
    • By bostonerimus 12th Oct 18, 1:59 PM
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    bostonerimus
    He still gets his personal tax allowance if he still holds a UK passport I think.
    Originally posted by TBC15
    Yes, local tax laws will apply. He/she will have to apply for the UK tax allowance on HMRC form R43, and if the level of UK income and gains can be kept below the thresholds there'll be no UK tax just using domestic law, but if there is a treaty in place that might not be necessary.
    Misanthrope in search of similar for mutual loathing
    • TBC15
    • By TBC15 12th Oct 18, 3:08 PM
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    TBC15
    And Mr hparker is located where?
    • bobhopeful
    • By bobhopeful 12th Oct 18, 5:08 PM
    • 29 Posts
    • 7 Thanks
    bobhopeful
    The consensus is to use up your SIPP first before your unsheltered investments and your ISA.

    You mentioned considering inheritance. A SIPP can be passed on free of IHT.

    If it is passed on before you are 75 the information I have read suggests a SIPP attracts no income tax (unfortunately the help guide I have does not make it clear if the "free of income tax" means the beneficiaries pay no income tax at all on any amounts they withdraw at any time regardless of their other taxable earnings).

    If you pass it on after you were aged 75 it says the beneficiaries would have to pay income tax "at their marginal rate". I can't tell you what a "marginal rate" of tax is and the information didn't explain that term either.

    I hope this helps but maybe some else can help more!
    • bostonerimus
    • By bostonerimus 12th Oct 18, 7:28 PM
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    bostonerimus
    A sensible answer cannot be given without knowing where the OP lives so that the terms of the relevant tax treaty are known.
    Misanthrope in search of similar for mutual loathing
    • bobhopeful
    • By bobhopeful 14th Oct 18, 11:12 AM
    • 29 Posts
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    bobhopeful
    As advised above you need to check the DTT with a tax adviser. Once you have determined that your ISA, GIA and SIPP are clear of tax in your country of residence and there is no UK tax liability at the point of becoming UK tax resident, then you can decide the order to choose to deplete your three pots while you are still outside UK taxation.

    The ISA is most tax advantageous under UK taxation So which to deplete first, SIPP or GIA?

    This is not so easy to determine if you also want to consider inheritance as well.

    Anything withdrawn from the GIA under UK tax residency will be subject to CGT. Anything left in the GIA and bequeathed would also be subject to IHT (assuming the exempt allowance is already used).

    Anything withdrawn from the SIPP under UK tax residency will be subject to income tax. But anything left in the SIPP and bequeathed is exempt from IHT. If the bequeathed before age 75 the beneficiaries can withdraw the whole amount as lump sum or take an income from the pension fund without income tax in their own name. If bequeathed after age 75 then the beneficiaries will pay income tax on any amounts withdrawn.

    All amounts (lump sum, or income) withdrawn from a SIPP are always taxed as income (subject to income tax) never as capital gains.

    The other advantage of the SIPP (for IHT) is that it can be passed on to another and the recipient can do so as well, allowing a family tax-free legacy (if it remains within the pension wrapper) ad infinitum.
    Last edited by bobhopeful; 14-10-2018 at 11:15 AM.
    • TBC15
    • By TBC15 14th Oct 18, 11:50 AM
    • 596 Posts
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    TBC15
    hparker do you pay any income tax where you live?
    • hparker
    • By hparker 14th Oct 18, 4:36 PM
    • 5 Posts
    • 6 Thanks
    hparker
    Thank you again for the replies.

    I do not have plans to return to the UK now, but approching retirement I may soon need to withdraw income from my stocks and shares funds investments (SIPP, ISA, GIA). But in case I may ever be tax resident or subject to UK tax in future, if I need to withdraw income now I want to take it from the least UK tax efficient pots and leave the most UK-tax advantageous investments to accumulate further.

    As advised above you need to check the DTT with a tax adviser. Once you have determined that your ISA, GIA and SIPP are clear of tax in your country of residence and there is no UK tax liability at the point of becoming UK tax resident, then you can decide the order to choose to deplete your three pots while you are still outside UK taxation.

    The ISA is most tax advantageous under UK taxation So which to deplete first, SIPP or GIA?

    This is not so easy to determine if you also want to consider inheritance as well.

    Anything withdrawn from the GIA under UK tax residency will be subject to CGT. Anything left in the GIA and bequeathed would also be subject to IHT (assuming the exempt allowance is already used).

    Anything withdrawn from the SIPP under UK tax residency will be subject to income tax. But anything left in the SIPP and bequeathed is exempt from IHT. If the bequeathed before age 75 the beneficiaries can withdraw the whole amount as lump sum or take an income from the pension fund without income tax in their own name. If bequeathed after age 75 then the beneficiaries will pay income tax on any amounts withdrawn.

    All amounts (lump sum, or income) withdrawn from a SIPP are always taxed as income (subject to income tax) never as capital gains.

    The other advantage of the SIPP (for IHT) is that it can be passed on to another and the recipient can do so as well, allowing a family tax-free legacy (if it remains within the pension wrapper) ad infinitum.
    Originally posted by bobhopeful
    Reasons to deplete the SIPP first:
    All amounts withdrawn from a SIPP are taxed as income tax rate? So if the whole 200,000 was withdrawn from the SIPP, after any 0% personal allowance it would be taxed at the bands of basic, higher, and additional rates, 20%, 40%, 45%?

    Whereas all withdrawals from the GIA would be taxed at Capital Gains Tax rates which are either 10% or 20% depending upon your income tax.

    Reasons to deplete the GIA first
    Once I start to withdraw from the SIPP, that means I also cannot make further contributions into it. Also the SIPP is the only investment pot that can be passed on without inheritance tax.

    hparker do you pay any income tax where you live?
    Originally posted by TBC15
    Yes in my country of residence I pay income tax for self employment. I also file a self assessment tax return in the UK to declare rental income on a flat which I rent out since I left the UK.
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