I'm working temporarily in the US, but I'm from the UK. I have a Health Savings Account (HSA), which works similarly to a retirement account (penalties for withdrawals before 65, free thereafter; tax-free growth etc.) with the added bonus that withdrawals for healthcare expenses are tax-free at any time. Many sources recommend contributing to HSAs as much as possible, even before contributing to traditional retirement accounts.

My question is: how would an HSA be taxed in the UK? Would it be recognised as a retirement account/pension for tax treaty purposes, i.e. growth and withdrawals would be tax free? Or would capital gains/dividends within the HSA be taxable?

  • As I understand it, a crucial question would be whether the HSA is recognized as a QOPS/QROPS (qualifying overseas pension scheme/recognised overseas pension scheme) by HMRC - see gov.uk/government/publications/…. If it is, it'd be treated as a pension by HMRC. If not, you'd probably be subject to the full monty of UK taxation on income and gains. A quick google didn't find me anything on whether HSAs qualify or not though (so I'm commenting rather than answering). – timday Sep 5 at 9:24
  • I think QROPS only applies to pension transfers. From what I've read, no US retirement accounts qualify, so you're stuck with them until retirement (unless you close them out with large penalties). – moneydog Sep 5 at 16:01
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    I think the relevant legislation is the UK-US dual taxation treaty, and whether an HSA qualifies as a "pension scheme" by that document's definition. – moneydog Sep 5 at 16:04

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