There may be trouble ahead for those US residents with QROPS, specifically those that were advised to transfer their British pensions to a Malta QROPS or a Gibraltar QROPS while living in the USA. If you were advised before you became a USA resident then it may be that different rules apply.
USA Residents with QROPS – A reminder
The transfer of a UK pension for USA residents to a QROPS is not treated by the IRS as an allowable rollover for tax purposes.
This was made clear in an IRS memo in 2011 where The Department of the Treasury specifically singled out Malta but this could also apply to Gibraltar QROPS. The relevant paragraph says-
However, a pension scheme established in a third country, e.g., Malta, would not be a pension scheme within the meaning of Article 3(1)(o) of the U.K. treaty because it is not established in one of the two Contracting States (the United Kingdom and the United States). Therefore, if the transfer were to a pension scheme established in a third country, instead of to another pension scheme established in the United Kingdom, the transfer could be treated as a distribution that would be subject to taxation as income of the individual under paragraphs 1 and 2 of Article 17 of the U.K. Treaty.
Tax Advice-USA residents with QROPS
At the time we covered this issue, the SEC had already started to raise concerns about these transfers and within the SEC press release was the comment ‘materially misleading statements concerning tax treatment ‘.
Our advice at the time was to seek local tax advice if anyone had concerns as well as contacting a professionally competent and qualified pension adviser that understands both Malta QROPS and British pensions.
That was the advice at the time. However, things have moved on and it seems that ‘putting one’s head in the sand’ and hoping that the IRS are not looking into these transfers is not an option.
There May Be Trouble Ahead
Back to the Irving Berlin song, with the opening line ‘There may be trouble ahead’, many will recall it came from the song ‘Let’s face the music and dance’. We would recommend you read our next article about this as there appears to be little to dance about.
Put simply, USA residents with QROPS need to be talking to advice firms like us (Aisa Group) and we will assist wherever we can, although we cannot provide local tax advice- which is critical here. Should you refer to your original adviser? Well, if they advised you after 2011 then the simple answer is that you may be in the position where you need to get legal advice if they are not prepared to compensate you for poor advice.
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.
28th November 2023
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