Are QROPS a good idea for the USA? British Pension transfers for US Citizens
If you are a US citizen, who works or worked in the UK, you will possibly have accrued British pension rights (either a private fund or a company pension worth less than £1,000,000) and this article is for you, as well as British expats living in the USA.
If you have “googled“ or equivalent, then almost certainly you will have found multiple articles suggesting you should consider a QROPS, probably from Malta as the QROPS has to be held outside the UK.
QROPS (often referred to as ROPS) are Qualifying Recognised Overseas Pensions are a huge global commission driven business, but are they right for you in the USA?
QROPS- US Citizens/tax residents
Is there such a thing as an IRS compliant QROPS for US residents? IRS enquiries indicate that under ordinary circumstances transfers between states (UK, USA, Malta for example) would not come under Article 18(1) of the 2001 United Kingdom-United States Double Tax Treaty, and the distribution may be viewed as taxable, this is because it is unlikely to be deemed a tax-deferred rollover distribution.
The IRS said, as an explanation, that plans outside of the U.S. are not recognized as qualified plans (although internal British pension transfers are recognised). Therefore, they cannot be transferred from state to state as a tax-free transfer, as is possible (something the US IRS term as a rollover) from a qualified plan to another qualified plan such as an US IRA or 401k.
British Pension transfers for US Citizens or Tax residents
An IRS release in May 2010 states:
“If an employer pension scheme in the United Kingdom and an SIPP are both pension schemes within the meaning of Article 3(1)(o), then a transfer of income earned by the employer pension scheme to the SIPP would not be a taxable event in the United States.”
The DTA between the USA, the UK and Malta shows there may be scope to transfer to a QROPS only before moving to the US, providing the correct tax advice is taken. However, once resident in the USA the situation becomes complex again as funds could be taxable.
Some advisers, often not registered in the USA or not giving advice actually in the USA, claim it is not taxable but they are relying on a lawyer‘s paid opinion which has never been tested, while IRS comments appear to supersede this.
Conclusion
Websites encourage people to transfer to a QROPS, citing advantages that are not supported by fact and which ignore additional risks. British Pension transfers for US Citizens are possible and worth considering. A British pension can be managed and invested in US funds and currency, as though it were in the US anyway, without risk of the IRS ever seeking additional taxes other than income tax at retirement. The non-taxed lump sum from a pension held in the UK is recognised under the DTA and no federal tax applies, although state taxes may apply.
If your funds are worth more than £1,000,000 you may have an additional problem. Work with a US tax adviser and a UK regulated adviser to obtain best outcome for yourself and your British pension.
Background
Aisa and their network OpesFidelio recently won “ Best Practice Adviser” and “Best Client Services” in the European Best Practice IFA category of the International Adviser awards for 2016 and intend to bring this high equivalent level of service to South Africa financial advisers.
They have also won multiple other awards for their advice and service based principles since 2009, and been finalists with various publications from the FT through to Moneyfacts in the UK.
OpesFidelio offers the ability for individuals and firms who want to transition to a fee based culture in the EU to work with Aisa Group.
British Pension transfers for US Citizens End
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article.
This article was published on 12 January 2017
See various video’s about this at our channel TAILORMADE FUTURE.
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