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First of all - if you are UK resident and not US citizen - Pensions and Annuities paid from US sources are not subject of withholding. That is according to US-UK tax treaty - see here - http://www.treasury.gov/resource-center/tax- policy/treaties/Documents/uktreaty.pdf see page 19 - a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State. Thus - your US pension is NOT subject to 20% Federal Withholding Tax.
But will be taxable in UK. If you receive a pension from a foreign country while you're living in the UK it will be subject to UK tax rules. Generally 90% of your pension will be added to your UK taxable income.
See details here - http://www.hmrc.gov.uk/manuals/eimanual/EIM74500.htm
Please be aware that only periodic payments are exempt from US taxation.
See on the same page - 2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.
So lump sum distribution will be fully taxed in the US and in UK. However - you will be able to claim a foreign tax credit on your UK tax return for US taxes.
Let me know if you need any help.
My pension pot is with American Funds. They do not offer a pension annuity service. I would have to find a U.S. insurance company & transfer the fund to them (without a witholding tax) but then I would be drawing a pension in US dollars with the consequent risk down the line of exchange rates. American Funds say they will apply the 20% witholding tax if I take the entire pension pot back to the UK now. What concerns me is how HMRC would view the 80% repatriated to UK....would they tax it again? Overall, given tax considerations would I be better off keeping the pot in USA and drawing a US dollar pension or taking the 20% witholding hit & repatriating the 80% to UK? I understand that I would pay income tax on any pension income from USA just as I pay tax on my current UK final salary pension. Thank you.