Tax and Pensions: FTC Planning with a SIPP S
elf Invested Personal Pensions could be the answer if you have excess Foreign Tax Credits. The experts from Tax Advisory Partnership (TAP) and Tanager Wealth Management (TWM) give you an overview of the US taxation and investment opportunities when investing via a SIPP. As many US citizens in the UK know, the US/UK tax treaty allows you to claim a foreign tax credit for the UK taxes you have paid against the US taxes that are due on your income. While this avoids double taxation, it often leaves US taxpayers resident overseas with excess foreign tax credits. Foreign tax credit excesses occur because usually the UK tax paid is more that the US tax due on the income in any year. These excess foreign tax credits carry forward for 10 years at which point they expire if they were not used in the intervening period. The dilemma for a US taxpayer is how to utilize these credits without taking extreme steps such as moving to a lower taxed country! In this article we have focussed on one of the key tools for utilizing these credits, Self Invested Personal Pensions (SIPPs).
20 August 2015
Who can invest in a SIPP and how much can I contribute?
(TAP) In order to contribute to a SIPP you need to be UK resident and under the age of 75. While this does mean you could open accounts for a number of members of your family, you should carefully consider each person’s UK and US taxation before investing. In theory you can contribute up to 100% of your earnings, however, HMRC set a maximum annual allowance for contributions which is currently £40,000. There is also a maximum lifetime allowance of £1.25million which should also be considered. You should note that both the annual and lifetime allowances have been revised downwards in the March and July UK budgets and new limits will apply to certain taxpayers from April 2016. You may also be able to utilize unused allowance from previous years in order to maximise your initial contribution. You should discuss with your tax advisor before any contributions are made. (TWM) Pension advice is highly regulated in the UK, especially when it comes to consolidating multiple occupational pensions (which is a typical reason for
establishing a SIPP) and American expats should ensure they receive appropriately regulated advice before opening a SIPP. In the UK you can make Carry Forward contributions to a pension if you are already a member of a UK pension. From tax year 2011/12 onwards, unused annual personal allowances from the three previous tax years can sometimes be carried forward to the current tax year. This can allow pension contributions/ accrual in excess of the standard annual allowance to be made in a tax year without incurring an annual allowance tax charge. There are strict rules governing how carry forward works: • Unused annual allowance can be carried forward to the current tax year from the previous three tax years. • It’s only possible to do this once the current year’s annual allowance has been fully used up (ie. a person’s total annual contribution(s) from all sources to registered pension schemes with Pension Input Periods (PIPs) ending in the current tax year must be due to total at least £40,000 gross before carry forward can be used). • Unused annual allowance is