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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29952
Experience:  Taxes, Immigration, Labor Relations
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I am currently resident in the UK (own home here etc.) and

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I am currently resident in the UK (own home here etc.) and am UK domiciled. I will shortly move to Pakistan for a few years. I have investments in a US 401K which I want to cash out. I understand I need to complete a W8BEN and maybe also a W7 but what rates of withholding tax should I expect to see? Further will this rate always be the same based on current legislation. In other words, if I cash out now or when I am a retiree, will the rate be the same (using today as an example)?


LEV :

Hi and welcome to Just Answer!
In general, nonresident aliens are subject to NRA at 30% on the gross taxable income from U.S. sources that is not effectively connected with a U.S. trade or business.
However - as a resident of UK - the tax treaty between these two countries provides zero withholding from pensions - see for reference this publication, page 41, right column - http://www.irs.gov/pub/irs-pdf/p515.pdf
You will claim the tax treaty benefits by filing form W8BEN
That income will be taxed in UK.
Let me know if you need any help.

Customer:

So I just need to complete the W8BEN and don't need a TIN (from W7)? I am not a retiree yet but just want to cash in the 401K pot. Do you know what taxes I would pay in the UK? When I cash this in, I will most probably be non-resident for tax purposes, in the UK as I will be living and working in Pakistan?


 

Customer:

You say this is taxed in the UK. Is this taxed just like UK regular income (salary, for example) or as some kind of capital gain? Are there deductions which can be offset against this?


 

Customer:

Also, I put in these funds over a couple of years and the current value of the fund represents contributions and growth. Would it only be the growth that is taxable?

Customer:

BTW,


 

Customer:

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LEV :

If you will be a resident of Pakistan - you will be taxed in Pakistan - not in the UK.
There is a similar tax treaty between the US and Pakistan - you may see references on the same page in publication 515 - zero withholding.
Generally - you do not need ITIN - as long as the administrator of 401k account will accept documents supporting your residency.
However - some administrators do require ITIN to avoid withholding - so you better to contact your administrator. When contacting - mention tax treaty benefits and what country you are a resident - and ask what documents they would accept to avoid withholding.
Here is a reference to the tax treaty document - www.irs.gov/pub/irs-trty/pakistan.pdf

Customer:

Thanks for your help.

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