US Residents who transferred into a QROPS – There May Be Trouble Ahead – Part 2


US Residents who transferred into a QROPS

Our previous ‘There May Be Trouble Ahead‘ post covered the position of the IRS on British pensions for US Residents who transferred into a QROPS in Malta and Gibraltar.

While the Overseas Transfer Charge  effectively stopped such transfers from taking place, that did not mean the IRS was going to ignore what had happened prior to its inception in 2017.

US Residents who transferred into a QROPS – Current Position

The US Department of the Treasury released a statement and referred to the participation of a US resident in a Malta Retirement Account (incl. QROPS) as a ‘listed transaction’ and a ‘reportable transaction’. This could also apply to  Gibraltar QROPS.

To quote the specific text….

The provision states that, except as provided in regulations, a listed transaction means a reportable transaction, which is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of section 6011

There appears to be exemptions for those that are now currently US residents that transferred their British pensions to a Malta QROPS, while resident in another country at the time of transfer. However, that exemption ceases as at 6th June 2023.

US Residents with a Malta QROPS- What Now?

Given the press release is 38 pages long, it would be difficult to go into great detail about this in a short blog. We would recommend you take the time to read the document and be aware of the potential penalties that can apply for non-compliance.

It seems clear that the transfer of property (incl cash/funds) and the taking of income/capital from a Malta QROPS falls under the definition of ‘listed transaction’. It is also becoming clear that tax returns should have included current income and gains within the QROPS and that income taken is not exempt from US taxation.

There is a requirement to complete IRS Form 8886 within 90 days of the final ruling on these proposed disclosures or Malta QROPS members could face large financial penalties.

QROPS and Malta Trusts

The majority of the Malta QROPS are trust based (not contract based) and so there is an additional requirement that US residents also complete forms IRS 3520/3520-A, for trusts. We have heard that failure to complete such forms could negate any Statute of Limitations- with ensuing indefinite assessments and penalties.

Summary-US Residents who transferred into a QROPS

It would be sensible for all US Residents who transferred into a QROPS to take tax advice about this as soon as they can. Many may well have been filing returns that included the QROPS (Malta QROPS and Gibraltar QROPS) and may want to review if these filings made the assumption that the income and gains and distributions were exempt from US tax. Further, the proposed rules may be amended during the review periods and so people need to be aware of this too.

Important Note- We are not tax advisers and all this information is based upon releases from The Department of the Treasury. Local tax advice should be taken in all cases. However, we warned about this issue years ago in our previous posts.

Once advice is taken, given the removal of the LTA charge , one would have thought that the better investment solution may be to consider bringing the Malta pension back to a UK pension. However, before even considering this, any US Resident who transferred into a QROPS needs to take local tax advice before doing anything as we have seen comments to the effect that a reversal back to the UK could be seen by the IRS as trying to deprive them of tax and be seen as an unauthorised transaction with substantial financial penalties.

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 up to date 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. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

November 2023

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