Episode 104
NT Tax Code Rejections: Why HMRC Is Making Pension Relief Harder for Expats
For British expats in America drawing income from a UK pension, the NT tax code has long been a straightforward, if slow, way to avoid being taxed at source in the UK on income that should only be taxable in the US. But something appears to be changing at HMRC, and what was once a simple administrative process is becoming unpredictable, inconsistent, and in some cases, actively obstructed.
In this From the Trenches episode of Expat Wealth, Richard Taylor, Chartered Financial Planner and founder of Plan First Wealth, and business partner James Boyle share three real client cases that have taken them by surprise. The first involves a client who applied for an NT tax code over two years ago and has since had it granted on two of his three UK pensions, with no explanation as to why the third was excluded. The second is a case where HMRC outright rejected an application, claiming the pension in question was not a registered pension scheme, despite it clearly being one, an apparent administrative error that now requires a drawn-out correction process.
The third case, and perhaps the most concerning, involves a client who followed expert advice to the letter. Working with a US-UK cross-border tax advisory team, he took small, regular UFPLS withdrawals from his SIPP, a strategy designed to have pension income treated as ongoing payments rather than a lump sum. Despite the amounts falling well below HMRC’s own published thresholds, the claim was rejected on the basis that the payments constituted a lump sum, a position that surprised even the specialist tax advisers involved.
Richard and James discuss what these cases might signal about a broader shift in HMRC’s stance, particularly in light of recent guidance clarifying how lump sums from UK pensions are defined and taxed. They stress that while the US-UK tax treaty should ultimately protect expats from double taxation, the mechanics of resolving these disputes can be time-consuming, expensive, and deeply frustrating.
Whether you hold a UK SIPP, are considering applying for an NT tax code, or have already hit a roadblock with HMRC, this episode offers a candid look at a process that is no longer as routine as it once was, and why having the right cross-border tax advice matters more than ever.
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Expat Wealth is supported by Plan First Wealth. Plan First Wealth is a Registered Investment Advisor serving fellow expatriates and immigrants living across the US on matters such as retirement planning, investment management, tax planning and non-US asset management.
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Expat Wealth is affiliated with Plan First Wealth LLC, an SEC registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.
ABOUT RICHARD:
Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.
As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).
Connect with Richard on LinkedIn
TRANSCRIPT:
Richard Taylor:
00:00:00.000 — 00:00:28.160 · Richard Taylor
I’ve never seen this before. So we have another client who has just applied for an NDT tax code, and it’s been rejected because the HMRC have determined it’s not a registered pension scheme. Therefore it doesn’t qualify for an NT tax code, which is utterly bizarre because it is a pension. I mean, let’s say you’ve got $1 million pension and you’re taking ten grand as a UIF, pls, and the UK is claiming that’s a lump sum.
Give me a break. Give me a break.
00:00:28.200 — 00:00:48.400 · Speaker 2
It doesn’t make any sense. Yeah. If that’s a lump sum what would clarify is income then it almost seems impossible to meet that standard. I fixed a towel holder in my apartment and I felt like a superhero. I genuinely I yelled, I shouted in glee, I said I did it. That’s a powerful feeling you feel. You feel really good.
00:00:51.280 — 00:01:41.000 · Richard Taylor
Welcome to Expat Wealth, a planned first world podcast dedicated to helping ambitious British expatriates living in America to thrive here. I’m your host, Richard Taylor, and Plunge First wealth is the business I founded and run today alongside my business partner and co-host, James Boyle, and we work with successful British expatriates living across America to make the most of their opportunity while avoiding the expat landmines.
And boy, are there a lot of landmines in America. But first, a quick disclaimer. While Pun First Wealth LLC is an SEC registered investment advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views and positions of Pan. First, wealth information presented is for educational purposes only.
Now, if you aren’t already receiving our emails, please go to our website.
00:01:43.920 — 00:02:19.760 · Richard Taylor
And sign up there. It’s free and you’ll be notified every time we drop a new episode. And so much more. Okay, on today’s From the Trenches, James and I bring you behind the scenes here at Planet Wealth as we build this business together and we work with our expatriate clients trying to make a difference for them and for their families.
If you have questions for James and I. We will try and answer them on the show. And if we can’t, we’ll find someone who can. Email us your questions at Expat Wealth at Worldcom. So without further ado, let’s get into it. Hi, James. How are you doing?
00:02:19.880 — 00:02:20.600 · Speaker 2
Good. How are you?
00:02:20.640 — 00:02:55.280 · Richard Taylor
Richard I’m tired, mate. I’m tired. As you know, a house full of dependents. You know, I’ve got a kid who’s scared of the dark. I’ve got a kid who wakes up super early and then makes it his mission to to wake his brother up and then us up at the same time. But. But failing that, I’ve got a dog who likes to be sick when they’re not waking up early.
So the last two nights I’ve had a dog who has been middle of the night throwing up leaves or whatever else he’s been eating. So I’ve been out in my PJ. Well, not PJ’s, but you know, like I’ve been out in the middle of the night.
00:02:56.160 — 00:03:01.680 · Speaker 2
I thought, I thought with school starting, This would all have settled down, but sounds like.
00:03:02.000 — 00:03:10.840 · Richard Taylor
And then the dog’s just like nope, my turn. So yeah, I honestly feel like I’m not a good night’s sleep in in eight years and it’s just exhausting.
00:03:10.880 — 00:03:12.880 · Speaker 2
Hopefully the dog, it’s just something he ate or something.
00:03:12.880 — 00:03:24.760 · Richard Taylor
He’s he’s he does this periodically. Yeah. He’s absolutely fine. It’s just I swear he does it on purpose. But he’s he’s fine. He’s fine. Uh, but yes. No. So I’m tired. I’m tired. But do you want to know how middle aged I am?
00:03:24.800 — 00:03:26.440 · Speaker 2
Let’s hear it. Let’s hear. Okay.
00:03:26.560 — 00:03:27.000 · Richard Taylor
So.
00:03:27.240 — 00:03:31.400 · Speaker 2
So should we do, like, a week? How middle aged are you? And I might be an American.
00:03:32.040 — 00:03:50.760 · Richard Taylor
Uh, yeah. I’ve got no idea what you’re talking about. Uh, but I. On Monday, as you know, we had people working in the house on Monday, remember? Yeah, we had people working in the house after five years of wearing this home, our garage was just dumping ground. You know, it was so messy that it was one of those, like, you’d go in there and you get stressed out just being around there.
00:03:50.760 — 00:03:51.360 · Speaker 2
Scary.
00:03:51.400 — 00:04:00.400 · Richard Taylor
Yeah. Just drop our boxes in there like it was just a complete mess. And we had, uh, one of those have you got engaged They have like the the slats on the wall.
00:04:00.440 — 00:04:05.560 · Speaker 2
Yes. Like for tools, as I understand it, you know, experience of my own. Yeah. I have.
00:04:05.560 — 00:04:13.160 · Richard Taylor
No tools. But you can hang. You basically have a slat wall. It’s called we had a slat wall installed and they also made, uh, they also built a
00:04:14.280 — 00:04:35.840 · Richard Taylor
cabinet and something else. They had a slat wall. And so I had many, many dump rooms as well, or refuge, whatever you guys call a dump. Um, and, you know, our garage is completely tidy, and it’s a Berkeley. Kate and I find ourselves just going to the door and looking in, like, super proud of ourselves. Like.
And I stood there thinking, this is so tragically middle aged.
00:04:35.960 — 00:04:39.640 · Speaker 2
Yeah, it’s nice though. It’s sweet. You can say that.
00:04:40.280 — 00:04:57.470 · Richard Taylor
You can say, yeah, it’s coming for you. There is no way out. You might be you might be out there now in in city center Philadelphia thinking I have this great life. I’m out every weekend. I go to bars, I go to restaurants, I can walk everywhere. It’s great fun. Don’t even have a garage. Don’t care about any of this stuff.
It is coming for you.
00:04:57.470 — 00:05:00.030 · Speaker 2
It’s coming. I feel it nipping at my heels.
00:05:00.110 — 00:05:15.230 · Richard Taylor
Ten years time, I’ll be out of this. I’ll be gallivanting around New York and Europe having fun. And you’ll be in the thick of it. And I’ll be. And I’ll be saying, do you remember that? You remember that, and you’ll be stood there on the cusp of your garage, going, oh, look at this. I’ve got my I’ve got my lawnmower hung up here.
You’ll be so proud of yourself.
00:05:15.310 — 00:05:41.670 · Speaker 2
I’ll be staring at them slat walls, just salivating. Yeah, yeah. You know, speaking of DIY, I fixed a towel holder in my apartment and I felt like a superhero. I genuinely didn’t, I yelled, I shouted in glee, I said I did it, I bought the tools, I bought the I couldn’t tell you what it was called. Now, the anchor piece or whatever.
Put that thing in there. That’s a powerful feeling. You feel right? You feel really good.
00:05:42.390 — 00:06:04.430 · Richard Taylor
Yeah. But also, I’ve reached a point where when I occasionally I’ll still I’ll fix something. I’ll get that feeling of like, um, accomplishment. Yeah. But in general, now I, we found the, these guys that came around the corner, the affordable handyman in Greenwich. They are brilliant. Their work is fantastic.
Their and their their fees are reasonable, and I just I love being able to just call people and get this stuff fixed now.
00:06:06.630 — 00:06:07.670 · Speaker 2
Um, and.
00:06:07.670 — 00:06:07.870 · Richard Taylor
Don’t.
00:06:07.870 — 00:06:11.750 · Speaker 2
Get me wrong, it’s the smallest, dumbest project to do. But yeah.
00:06:11.750 — 00:06:46.830 · Richard Taylor
But do you know home ownership? For me, the the overwhelming feeling has been of a turtle that’s been turned on its back. I am the turtle. I’ve been turned on my back and I’m just flailing my legs akimbo in the air, not knowing what to do. And I and I and I’ve and I’ve essentially I know it’s all doable. Yeah, I know you go on YouTube and Facebook, but I, I have a history of making of making problems worse and more expensive to correct.
So I’m pouring my energies and my abilities into my business and my kids and my marriage, and I’m going to leave DIY to the professionals.
00:06:46.870 — 00:06:49.870 · Speaker 2
I think that’s a perfect, perfect idea and.
00:06:49.870 — 00:06:50.310 · Richard Taylor
Perfect.
00:06:50.350 — 00:06:50.950 · Speaker 2
On that.
00:06:50.990 — 00:07:32.550 · Richard Taylor
Yes. On that. Should we segue into what we’re going to talk about today? So, Um, yeah, I got trying to keep this for 30 minutes. We’re going to talk about something that, uh, really has just kind of like, uh, is taking us a bit by surprise NT tax code. So, um, I’m not going to go into great detail on what the NT tax code is today and how you go about getting one, because we’re going to do another episode on that specifically in the near future.
But just let’s give listeners a quick intro what we’re talking about. So when you have a UK pension, we’re talking about sips here. When you have a UK pension and you’re starting to receive payments from it in the US,
00:07:33.870 — 00:07:36.630 · Richard Taylor
it is going to get taxed at source. In the UK.
00:07:37.830 — 00:08:37.270 · Richard Taylor
The SIP trustees have no control over this. It’s done through pay which, you know, any British should remember what Paye is. It’s done through the Paye system. You’re taxed at source even though it’s taxable in the in America. For the most part you’re taxed at source in the US. And um, and then you might have to go through the rigmarole of claiming that tax back or having trouble claiming it back, honestly.
As we’ll talk about later on. Um, and to avoid that, you can apply for something called the NT tax code. NT I think it stands for literally stands for no tax. You can stand for a no tax code. And if you get a no, an NTE tax code applied to your Paye system through the which the simple pay you, then you should be able to be paid out gross without any tax being withheld.
And that will make life a lot easier and simpler for you. So we generally recommend people who are in the US receiving, um, receiving and receive benefits to apply for an anti tax code. Now that is a whole process in itself which we’re not gonna get into today.
00:08:37.310 — 00:08:38.710 · Speaker 2
A frustrating process to.
00:08:38.710 — 00:08:47.790 · Richard Taylor
A frustrating and long process, but it’s a fairly simple one. And at the end of it you get an NT tax code and it’s simple. Or it was simple.
00:08:48.270 — 00:08:58.630 · Speaker 2
Especially in the cross-border space. As we know and you know from the podcast episodes, it’s simple comparatively to all the other things we talked about. Yeah.
00:08:58.950 — 00:09:20.630 · Richard Taylor
Um, but it was simple. And then suddenly it’s got complicated. So we’re going to tell people about three, three instances that have occurred recently, which I think are worth sharing. It’s more of a public service announcement than anything. We don’t actually have a solution. It’s more of like if you’re if you’re if you have a sip, if you’re thinking about getting an ENT tax code or if you’ve applied for one already and you’re scratching your head worrying what’s going on, you’re not alone.
00:09:20.670 — 00:09:46.230 · Speaker 2
Yes. And you know, it might be such that there isn’t a solution right now. I think we’ve, we’ve we’re going to talk about tax advisers, obviously, as we always do us UK cross-border tax advisors from our from what we’re hearing and seeing with clients and their interactions with their tax advisors. This has also come as somewhat of a surprise to them has been my experience.
Or they don’t quite know what’s happening or what, you know, the kind of next steps are going to be. So everyone’s in this pot together.
00:09:46.270 — 00:11:02.910 · Richard Taylor
Oh, that’s a great point. One of the one of the one of the examples when I sat here was actually advised by a US, UK cross-border tax advisor, A really a great one. So yeah, it seems to have caught them by surprise as well. So I’ll tell you what. I’ve got story. I’ve got two stories. You got one. So let’s just let’s go through them.
So the first one was a conversation I had with the chap and he uh, he’s actually had a successful outcome. He’s got three UK pensions and as of his last update, two of them have had an NI tax code applied to it. So one hasn’t and we don’t know why. So there’s an alarm. No alarm bells. The wrong word. But there’s a head scratcher straightaway.
Why why have two pensions had any tax codes applied to them. One hasn’t. So he doesn’t know. We don’t know. Um, but this is worth noting because this guy, I think he’s following our blog on this, applied to get one about I think it’s two, two and a bit years ago. Wow. Yeah. And so people know you, you send some paperwork off to the IRS, the IRS and HMRC, HMRC update your tax code.
It’s only about two. near. Not quite, but about two and a half years ago. Heard nothing. I think he even contacted IRS. Assumed that, uh, I assumed it had got lost.
00:11:04.350 — 00:11:16.990 · Richard Taylor
Applied for it again. And while he was waiting the second time, HMRC confirmed that two of his three pensions were were going to get the anti tax code.
00:11:17.030 — 00:12:15.350 · Speaker 2
Should we pause here because it’s highlighting so many little wrinkles in this in this whole thing. Right. Number one that jumps out to me. And again this is something that our clients, some of some people we talked to have had to find out the hard way. These codes are assigned separately to each pension provider.
Is is our understanding right. So you mentioned he’s got three pensions. Two of them have been applied this correctly. One of them have have not confusingly, uh, we’ve had clients who have had to who had an anti tax code in place for an existing employer pension. As an example, it defined benefit where they’re getting payments.
They were able to call then have that apply to another pension. But it’s important to note that it’s not such where you have an empty tax burden, and that covers you for everything. Coming out of the UK, it’s it’s separate codes applied to separate pots. Bizarrely, from my very American perspective.
00:12:15.350 — 00:12:49.550 · Richard Taylor
That’s such a great point. Yeah. So right I’m going to get into this with James James back on our as he learns the American system. But there are some things, right, that the American financial financial system baffle you. It banking is always the one that springs to mind. Yeah. But oh my gosh. Coming from the UK, we the way we have made pensions unbearably complicated and complex, seeing how easy it can be, seeing how the American system works, it’s so straightforward.
It just blows my mind that the UK have buggered this up so badly, frankly.
00:12:49.950 — 00:12:56.070 · Speaker 2
And the frustration. I’m not even going to try to defend it. The frustration that it leads to clients. And then, you know, obviously.
00:12:56.190 — 00:12:56.790 · Richard Taylor
We get blame for.
00:12:56.790 — 00:13:01.070 · Speaker 2
It. Yes. Well, I was going to put that a little more politely maybe. But,
00:13:02.150 — 00:13:40.950 · Speaker 2
you know, the questions come to us and we try to help the best we can. Unfortunately, in these kind of situations, whenever HMRC is involved, it’s usually a case of you do have to pick up the phone and call them, which is which is an odyssey in and of itself, trying to get a hold of them. Um, you know, the timing piece you also touched on there.
So historically we had always said, give yourself at least a year, write 12 months knowing that it’s going to take six, nine, ten, 11, 12 months for this to be applied. I think we’re finding that that is now stretching to 15 months, 18 months, two years in this case. Wait.
00:13:40.990 — 00:13:59.299 · Richard Taylor
Yes and no. So let’s use that as a segue into my next example, which is even more bizarre, frankly. And I hope to have an update for you on this one soon. you being listeners. So we have never seen this before. So we have another client who has just applied for an NT tax code, and it’s been rejected
00:14:00.900 — 00:14:02.060 · Richard Taylor
and it’s been rejected.
00:14:02.100 — 00:14:05.420 · Speaker 2
Had you ever seen that before? Because I’ve seen I have not seen that yet.
00:14:05.460 — 00:14:17.539 · Richard Taylor
I’ve never seen before. It has been rejected because the HMRC have determined that the the he’s the company he’s a he’s requesting. Well the the
00:14:18.780 — 00:15:28.300 · Richard Taylor
product the you know the reason he’s requesting one that it’s not it’s not registered pension scheme therefore it doesn’t apply. It doesn’t qualify for an end tax code which is utterly bizarre because it is a pension. It is a rigid pension scheme. It’s it’s incredibly obvious to anyone that it’s a registered pension scheme.
And the pension scheme have come back and said, we don’t know what’s going on here. Our best guess is whoever has picked up this case file at HMRC has looked at the Corp, the corporate name. So you have like a corporate body right. And the corporate body which is the same name as the pension scheme by the way.
But the corporate body will then um administer these different these you know, there’ll be a trusting company under it and then there might be another company that manages the payments. Right. But it’s all there’s one company above it that then manages these different, different aspects. Yeah. Like an umbrella.
Right. And they’ve looked at the top company and said, oh, that’s not a pension scheme. Yeah, that’s a company make organizing the pension. That’s not a pension scheme. Whereas they’ve just like scratched one.
00:15:28.300 — 00:15:29.260 · Speaker 2
One’s paid lower.
00:15:29.260 — 00:16:08.740 · Richard Taylor
An iota of common sense. Yeah, yeah. It would have been immediately obvious that, oh, that pension, that company relates to that pension scheme of the same name. And I’m sure those details are contained within the application. Um, so, so I can’t imagine this one’s not going to be fixed, but it’s going to involve a back and forth and that could be a challenge.
The reason it relates to the one is this. This client only applied for earlier this year. So we have our first person who first applied over two years ago early mid 2024. This client has got rejected which is not good not good outcome but applied earlier this year. So what’s the rhyme or reason there?
00:16:08.780 — 00:16:15.860 · Speaker 2
I was going to say there’s no rhyme or reason right. We can’t really figure out why. There’s delays with some clients and with others. It’s much quicker.
00:16:15.900 — 00:16:33.500 · Richard Taylor
That is a total head scratcher that HMRC would reject a a clear, bona fide um UK pension as not being a UK registered pension. Just, you know, I can only say
00:16:34.860 — 00:16:35.420 · Richard Taylor
it.
00:16:35.420 — 00:16:58.140 · Speaker 2
We’ll talk about the case I experienced recently or that is ongoing I should say. But does that speak to. And I’m sure we’ll talk about this, but does that speak to HMRC’s general sort of positioning or stance around all these issues seems to be getting a little bit more aggressive. I don’t know when it comes to things like lump sums and or is this just foolish?
00:16:58.340 — 00:17:09.699 · Richard Taylor
No, no, no, I do think that’s true because, um, because what we’re going to talk about in a second. Yeah, but I just don’t see the connection to this case. This is just a this is just a it’s just an administrative.
00:17:09.699 — 00:17:10.180 · Speaker 2
Clear.
00:17:10.300 — 00:17:20.180 · Richard Taylor
Initiative, human error. Yeah. Based on what I can only imagine. Is someone new to the job? Yeah, I would have thought. It’s pure speculation.
00:17:20.180 — 00:17:28.780 · Speaker 2
And it is people reviewing these. I’m sure right at some point in the process, someone is reviewing it and rubber stamping it or rejecting it.
00:17:28.820 — 00:18:23.020 · Richard Taylor
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00:18:26.380 — 00:18:49.900 · Richard Taylor
Institute. You will be glad you did and I hope to see you there soon. So yeah, watch the space for that one. I hope to have an update for people soon, but I imagine it’s going to involve, uh, some correspondence between the client and HMRC, maybe a call, but yeah, it’s that I’ll be taxed at source. Oh, and I should just say sorry.
I should just say. And if you tax at source and then you try and put a claim in for a tax refund,
00:18:50.980 — 00:19:04.260 · Richard Taylor
and HMRC have already said you haven’t got. This is not a registered pension scheme. Well they’re just gonna presumably they’ll just reject the case for a tax refund. On the same basis it’s not real pension. So right. I think it’s going to be he’s going to have to clear it up somehow.
00:19:04.420 — 00:19:07.700 · Speaker 2
And all the time and headache and expense that that involves. Unfortunately.
00:19:08.740 — 00:19:19.980 · Richard Taylor
This is why it would be good to have it if you had. I don’t think he does. He has a US tax adviser, not a UK. If you had a UK tax adviser, US, UK, you could get a UK tax advisor doing that on your behalf. Yeah. Make life a bit easier.
00:19:20.100 — 00:20:50.260 · Speaker 2
Yes. And that is a perfect segue to this next case, because this is a client that we work with who who has taken all the right steps. Right. Is working with a US, UK tax advisor team. Um, allotted enough time, right, 12, 18 months ahead of time, knowing that it’s going to take some time for the IRS to process and HMRC to process.
Took advice. I believe his tax advisors actually will file. You know, we’ll complete and file some of these forms on his behalf so that that’s a burden right there off this client shoulders. Um, the recommendation from the tax advisor team was to take what they call UFP, OLS, and I should know what that acronym stands for off the top of my head.
It’s something like UN crystallized funds, pension, lump sum. Effectively it is. Instead of taking what everyone thinks of that 25%. Right. The people’s pension commencement lump sum where you take that 25% and in one go. And in the UK that’s tax free. This UIF, pls is a mechanism whereby a pension will will make payments such that 25% of each payment is tax free, is considered part of your pension commencement lump sum 75% then is treated as a taxable distribution.
Um, we’re going to get into I think you know, this this meaning of a lump sum, and why it’s taken on such significance in the last year or so. I think when it comes to HMRC’s dealing with these things.
00:20:50.260 — 00:20:56.460 · Richard Taylor
We should also just say, James, you cannot explain why people do that. Just super briefly. Yeah. Okay. Yeah.
00:20:57.100 — 00:21:18.940 · Speaker 2
The the and and feel free to jump in here. But but our understanding again from the tax advisor team is that these will be seen as regular payments. Right. As, as sort of ongoing systematic regular payments as opposed to a lump sum, which can change how HMRC treats it from a tax perspective.
00:21:18.980 — 00:22:03.100 · Richard Taylor
Well, but also can change how it can give you a better argument. Again for the IRS about how the pickles is treated under we’re not open, we’re not going to open a can of worms right now, but pickles from from a the 25% payment from a UK pension that is tax free in the UK. Is it tax free in America? There is no clear answer.
Ask three different tax advisers. You get three different answers. One of those answers is. It’s more defendable if it’s taken as an income. And what James has just described. Taking UFP LS is a way to take it as an income and have a better justification argument for treating it as tax free.
00:22:03.220 — 00:22:04.260 · Speaker 2
So that’s.
00:22:04.540 — 00:22:05.300 · Richard Taylor
Great advice, really.
00:22:05.300 — 00:22:05.660 · Speaker 2
Important.
00:22:05.700 — 00:22:08.140 · Richard Taylor
Well, you want to go down. You want to go down that road. Yeah.
00:22:08.180 — 00:23:05.020 · Speaker 2
It’s sort of beneficial on both sides then. Right. And that was the advice from the tax team again. So yeah we initiated that right. Took a small but not insignificant initial withdrawal that’s going to generate. Right. That’s going to get 75% of that. That’s going to go through pay like you just described.
That’s going to assign a tax code. All the things that we would expect. Right. That was done over the summer, very recently, within the last month or so, 4 to 6 weeks, this person gets a letter from HMRC essentially Denying the ability to claim the tax treaty. Yeah. Rejecting it. Same. Same as. Similar to your case.
The wording was slightly different. Right. This, this they were saying. This is a lump sum. And in fairness to them, it is in the name. It’s in the acronym. But you know, the motivation here was having an ongoing stream of income. They said no, it’s a lump sum. We get taxing rights. It’s rejected under the tax.
00:23:05.540 — 00:23:32.099 · Richard Taylor
Yeah. And just just like we’re getting a bit technical here. So if anyone is still with us, let me just I’ll try and keep this brief. And this is why it’s so nuanced. What this space is so new and people get so frustrated by that. But that is just that is that that is that’s the world we operate in. Unfortunately, if you’re an expat here with with non US assets, um, it’s so nuanced and the nuance is and I don’t know why this is
00:23:33.740 — 00:23:44.650 · Richard Taylor
if you’re receiving an income from a UK pension under the treaty that is taxable in America and only in America.
00:23:45.850 — 00:23:50.209 · Richard Taylor
However, if you receive a lump sum
00:23:51.250 — 00:25:15.730 · Richard Taylor
from a UK pension that is taxable in the UK and then Americans, then American tax it as well I think. But primarily it’s first of all it’s taxable in the UK. Why I don’t know. Um well maybe America can’t can’t tax it. That’s point in the savings clause. Let’s not get let’s not get let’s not drill down and start right now.
It’s taxable in the UK. And the UK have reached last year came out with a some sort of note or publication where they clarified their understanding that anything over 50% was probably a lump sum. No, sorry, anything over 20% was probably a lump sum. Anything over 50% was definitely a lump sum. I think that’s what it said.
I might have got that wrong, but roughly they came out and they clarified their position on what counts as a lump sum or not. Now funnily enough, this payment was way below both of those. Way, way below. And it’s clearly going to be part of an ongoing income. And yet they seem to be claiming it’s a lump sum. Therefore it’s taxable in the UK.
So this that is a real surprise obviously to the tax advisers by surprise. Yeah. So is it a rogue agent like the one we’ve got for this other client or is it. Is this a new position. Like we don’t know. But it seems that the UK are taking a. Based on their stance last year. This note that clarified um clarified their position on lump sums and some stuff, that
00:25:16.890 — 00:25:35.090 · Richard Taylor
stuff that they’re doing in the UK regarding the treatment of, um, a 401 K’s and IRAs. It seems clear that the UK is is changing its interpretation or application of the treaty. And I think that we’re seeing the effects of that now with, with with this again, we’re not quite sure where where this goes from here.
00:25:35.250 — 00:26:03.850 · Speaker 2
Yeah. You know, it kind of speaks to the point earlier of, you know, does this all sort of belie a more aggressive positioning from HMRC than we’ve seen in the past? Maybe, right. This is pure speculation, and maybe in some ways this is a bit of an overcorrection, and there’s going to be some kind of clarification of of what the process is and what gets called out as a lump sum versus income.
But in the moment, there’s definitely some confusion. Um, even amongst the tax advisers.
00:26:03.890 — 00:26:11.250 · Richard Taylor
I mean, let’s say you’ve got $1 million pension and you’re taking ten grand as a you have less and the UK is claiming that’s a lump sum. Give me a break.
00:26:11.290 — 00:26:12.690 · Speaker 2
That doesn’t make any sense.
00:26:12.730 — 00:26:13.130 · Richard Taylor
Give me.
00:26:13.130 — 00:26:22.090 · Speaker 2
A break. Because then, you know, you question well what would if that’s a lump sum, what would clarify his income then? It almost seems impossible to meet that standard. Yeah yeah.
00:26:22.130 — 00:26:59.449 · Richard Taylor
Yeah. So sorry we haven’t got we haven’t again like I say public service announcement or anything, there seems to have something’s changed in that department and we’re seeing the effects of it. Yeah. We will do a full episode on the tax code, what it is, how you apply for it. And hopefully at that point we might have some updates on these cases and some clarity.
Watch your space. But look, if you are if if you are a British expat listening to this and you have assets in the UK, be them pensions or other assets. There is no way of getting around it. This stuff applies to you and it’s complex and it’s nuanced and it’s frustrating
00:27:00.930 — 00:27:03.410 · Richard Taylor
and it is what it is, and we just have to wait our way through it.
00:27:03.450 — 00:27:11.850 · Speaker 2
It’s the unfortunate space we’re in, right? Like, this kind of complexity is part and parcel of being a being cross-border, being expat.
00:27:11.850 — 00:27:31.970 · Richard Taylor
But we should be grateful because there is a really robust treaty between the US and the UK that does protect pension income. So as frustrating as it can be when there isn’t always a clear answer, and when you get these roadblocks that we should be grateful for, having this really robust treaty that does, for the most part, protect us from, uh, protect our pensions that we still treated as retirement accounts and pensions.
00:27:32.010 — 00:27:44.330 · Speaker 2
That’s maybe a key point and a more positive one to end on to. We don’t believe you’ll get double taxed, right? If you’re if you’re taking this income. Yes. But we haven’t seen how these play out.
00:27:44.330 — 00:27:47.010 · Richard Taylor
So know that. Yeah. Sorry.
00:27:48.490 — 00:28:21.170 · Richard Taylor
We’re talking about the mechanics and logistics. Yeah, yeah. The fact remains the treaty is in place and the treaty should, for the most part, protect you from double taxation. So you might have a situation where the UK is taxed, you at source, and the US wants to tax you. And for a period, I guess you could say that’s double taxation, but there should be a mechanism where you’d be able to get some of that tax back, and you only taxed once because the mechanics of this doesn’t supersede the treaty.
So I think that’s a really important point to make.
00:28:21.290 — 00:28:22.490 · Speaker 2
Yep. Absolutely.
00:28:22.530 — 00:28:30.130 · Richard Taylor
Good. Okay. Right. Well we’ll we’ll we will report back in due course. But we’re as baffled as you are. But we’re encountering multiple clients, so.
00:28:30.810 — 00:28:32.010 · Speaker 2
You’re not alone. Yeah.
00:28:32.050 — 00:28:40.250 · Richard Taylor
Yeah. We’re not you’re not alone. Uh, right. Pick a mix. Uh, what have you got for us, James? What are you, uh, you reading watching consuming at the moment?
00:28:40.410 — 00:28:49.730 · Speaker 2
So as a record, I’m heading off to the Emerald Isle on Friday, heading off to Ireland for a holiday. So yeah,
00:28:51.210 — 00:30:09.810 · Speaker 2
that would be a different trip altogether. Um, I’ve been so I’ve been stuck into a lot of Irish books. Fiction, nonfiction. Uh, watching shows, one that really jumped out to me. Uh, and this is actually, it’s a historian in Ireland’s name is Donal Fallon. He has a podcast, I think was the sort of origination of his sort of body of work.
It’s called Three Castles Burning. So the podcast is an excellent listen in and of itself. He wrote this companion book, um, it’s called Three Castles Burning A History of Dublin through City Streets. Fascinating. He sort of looks at the history of the city by each chapter, examining a city street, a block in Dublin, or an area of Dublin.
And it is. It is so cool the way he winds. Ancient history with medieval history, with sort of, you know, occupied history with with modern history. And it’s really I’ve never read a book quite that’s organized in this way. That’s kind of like the architecture meets the culture meets the history, but would highly recommend it, certainly, if anyone’s taken a trip to Ireland.
Do you know the streets? Uh, yeah. So I’ve been to Dublin a handful of times. We have family and friends over there. Um, a lot of them. I know. Some of them I’ve stayed on. I mean, you actually.
00:30:09.810 — 00:30:26.970 · Richard Taylor
Okay, so you often. Because I’ve never been to Dublin. Uh, that’s so me. I’m going to read that. Send me that link. Yes, I, I like it when these authors come up with these new kind of frameworks for approaching the subjects I do, I appreciate that. Do you know the phrase beyond the pale comes from Ireland and Dublin?
00:30:27.010 — 00:30:58.010 · Speaker 2
Ireland? Yeah, yeah. Like beyond Dublin was the was the hinterland and they call it. Yeah yeah yeah yeah yeah yeah. Just one more note. What was very cool is you could have like I had my phone open with my Kindle and I was on Google Maps walking down the streets that are being described in this book. And you can see all the historical landmarks and the things that he’s describing.
Very cool. Yeah. Yeah, really. What’s it called? Three castles burning. And that’s the name of the podcast and the book. Yeah, that’s that comes from the Dublin, uh, the the flag of Dublin. Okay.
00:30:58.010 — 00:31:39.930 · Richard Taylor
Well, I have just finished a book called Winged Victory by V.M. Yeats. And I listened to a podcast on, uh, World War one, uh, aviation fighter, um, fighter pilots. There’s a very famous, uh, German or there was a very famous German pilot called, uh, uh, von Richthofen, uh, the Red Baron, uh, had this famous flying circus Goering was a part of.
That’s a whole other story in itself. But, um, the podcast recommended this book, Winged Victory, and it’s written by a World War One fighter pilot. I’m more familiar with the Second World War stories of pilots. But you’ve heard that phrase they had like, um, famously, they had life expectancy of two weeks.
00:31:40.010 — 00:31:40.410 · Speaker 2
Wow.
00:31:40.570 — 00:32:16.370 · Richard Taylor
Have you heard that before? Yeah. Yeah, yeah. Famously in the Second World War over for the Battle of Britain, which is where the Germans tried to, you know, the Luftwaffe came and prepared Britain for a, for a for an overland invasion. Göring told Hitler that he could defeat us in the air, and we had the Battle of Britain, and it failed.
But famously, pilot Spitfire pilots in that period had a had a two week life expectancy. And you hear that stat and that sounds kind of crazy. And I’ve been aware of that stat for years. But I read this book, which was the First World War, but it was the same kind of thing. But in this period they had no ejector seat.
So if your plane went down, you going down with it and
00:32:17.730 — 00:33:06.360 · Richard Taylor
they what they said it’s quite a long book and it takes you through like the mental torture of these pilots. And they’re going up 2 or 3 times a day for an hour or two at a time, and you just become acutely aware that it’s like a normal life, but for 1 to 6 hours a day. You’re going on an excursion where 2 or 3 of your colleagues probably won’t come back.
You know, you’re living every day as if it’s probably going to be your last. And the turnover of people was mentally exhausting reading about it over 100 years later, let alone the mental anguish of having to deal with that. And and it turned that stat of like a two week life expectancy into something much more crystal and brutal.
It must have been so traumatic.
00:33:06.680 — 00:33:12.440 · Speaker 2
It’s hard to wrap your head around. You know what? What how does that impact the people who make it through to, you know, and.
00:33:12.480 — 00:33:26.560 · Richard Taylor
Just I just I thought, like, I walk my dog three times a day, right? Just imagine that every single day I go out for an hour walking my dog, and there is a very good chance I’m going to die on that walk and never come back. How devastating that is for me and everyone around me.
00:33:26.760 — 00:33:27.000 · Speaker 2
Yeah.
00:33:27.560 — 00:33:39.720 · Richard Taylor
I hope you’d be sad. You know, I’m living like that. The the the Mental turmoil. And this being Britain. And 100 years ago, everyone just drank. Just turned to whiskey.
00:33:39.720 — 00:33:42.040 · Speaker 2
Yeah. You know, you can’t blame them.
00:33:43.520 — 00:33:45.840 · Speaker 2
And the author was a was a pilot.
00:33:45.880 — 00:34:10.600 · Richard Taylor
Was a First World War pilot who survived. Yeah. Um, it was a it was just, I say, the best book I’ve ever read, although it was good, but it was just how it turned something abstract into something much more real for me. And I think I have much better appreciation for the turmoil, uh, than just hearing the crazy start.
You have a two week life expectancy. Yeah, it was a.
00:34:10.600 — 00:34:11.800 · Speaker 2
Winged ten.
00:34:12.399 — 00:34:22.760 · Richard Taylor
Winged victory by winged VM Yeats. And because it’s like 100 years old, it’s like £0.99 or $0.99 on, uh, on on Amazon Kindle. Nice for a Kindle, obviously. Yeah.
00:34:22.800 — 00:34:34.080 · Speaker 2
Anything you hear about World War One, it just I mean, obviously this is going to sound so glib, but it just sounds like hell on earth. It sounds like a just horrible for for everyone involved in the scars it leaves.
00:34:34.440 — 00:34:39.999 · Richard Taylor
And they really thought that it was so savage that that would be the end of war. And then they buggered up the
00:34:41.080 — 00:34:44.960 · Richard Taylor
buggered up the funnel of it so much they set to set the stage for the second one. So. Yeah.
00:34:45.000 — 00:34:47.000 · Speaker 2
Well that’s a nice sunny note you know.
00:34:48.280 — 00:34:52.280 · Richard Taylor
Well let’s go. Let’s end on a high. My garage is in perfect order.
00:34:52.320 — 00:35:00.080 · Speaker 2
Yes. You’ve got the slat wall. It’s not all bad. I put up a hand towel rack and yelled. I whooped like I just won a world championship.
00:35:00.480 — 00:35:05.600 · Richard Taylor
Yeah, we’re working on good end tax code outcomes for our clients.
00:35:05.640 — 00:35:08.360 · Speaker 2
So yes, yes, the little things in life.
00:35:08.800 — 00:35:15.880 · Richard Taylor
Okay, well, let’s have a great trip to Ireland. Drink some Guinness for me and we’ll see you next time.
00:35:15.920 — 00:35:17.360 · Speaker 2
Until next time. Cheers.
00:35:17.400 — 00:36:13.840 · Richard Taylor
All right. Cheers, James. Bye bye. All right, folks, that’s another episode of Expat Wealth under our belts. Thank you for listening. I appreciate it, and I appreciate you. If you’re enjoying the show and would like to support the mission, which is to help ambitious expats thrive in America and ask you to subscribe to the podcast wherever you listen, and also consider leaving a rating and review.
This stuff really does matter. Please help us get this information to the people who need it that is your fellow expats. Also, if you have any questions you would like answered on the show, you can get in touch with us at Expat Wealth. At wealth. Com. Just a quick reminder that this show is brought to you by planners wealth.
We are a US based financial planner and wealth manager and we help ambitious, successful international families living across the US to make the most of their opportunity and ultimately to retire happier. If you’d like to know more about how we might be able to help you retire, you can find us at our website.
00:36:16.240 — 00:36:26.840 · Richard Taylor
Or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to the podcast guys for their help producing this episode and the entire show. See you next week.
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