USA Tax On QROPS | Pension Legislation


Further to our last blog about QROPS in the USA,  we would like to talks about the potential consequences of USA tax on QROPS. Many having been persuaded of the supposed tax advantages of transferring a British pension to a third country such as Malta. Those that have QROPS in the USA should have been advised to take locally competent tax advice to see if they had enough foreign tax credits to offset any potential tax charge by the IRS. We would recommend a review .

USA Tax On QROPS- The IRS Position

The transfer of a UK pension to a QROPS is not treated by the IRS as an allowable rollover for tax purposes. Why do with think this? Well, apart from getting a professional tax opinion, the Treasury in the USA has made it quite clear. Let’s look at this further

A memo from the IRS in 2008 refers to a transfer out of the UK-


Whether an individual who is a resident of the United States may rely on the parenthetical language in Article 18(1) of the US-UK income tax treaty to make a tax-deferred rollover distribution from a UK pension to a US retirement plan in circumstances where the distribution would qualify as an ‘eligible rollover distribution’ within the meaning of Section 402(c) (4).


No. Nothing in Article 18(1) of the Treaty overrided the requirement that the distribution must qualify as an ‘eligible rollover distribution’ within the meaning of section 402(c) (4)

In 2011. The Department of the Treasury went further  and specifically singled out Malta as an example of a third country. 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.

Why mention USA Tax On QROPS again?

Well, recent action by the SEC  seems to have brought this to a head and this brings up two issues-

  1. The possible negative tax implications for those that have QROPS in the USA
  2. The use of insurance bonds within a pension (QROPS in this case) which we will cover again in the next blog.


If you care about your retirement and have genuine concerns about USA Tax On QROPS , then come and talk to one of the fastest growing and highest rated advisers specialising in this area; us! You can come and have a confidential discussion with us if you have a QROPS in Malta and you need an independent review. Please read our US tax residents and the QROPS debacle .

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.

This article was published on 5th July 2018

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