Living in the USA, and having a UK pension plan has just become even a greater problem due to additional IRS tax reporting. With mammoth fines for not reporting a UK pension, you need to transfer your UK pension to the US.
United States (April 19, 2014) -- Living in the USA, and having a UK pension plan has just become even a greater problem due to additional IRS tax reporting. With mammoth fines for not reporting a UK pension, you need to transfer your UK pension to the US.
The problem is the only way to do this without creating a tax nightmare is using a QROPS. Although there are fifteen registered QROPS schemes in the USA. Only one is an open scheme, a non company sponsored scheme. That is the Fidelity 401K.
The Fidelity 401k is a HMRC registered QROPS. However the IRS see the ability to transfer a UK pension to a 401K as a tax loophole. Given this this avenue is closed indefinitely.
There are solutions open for a USA resident and national to transfer to a FATCA compliant QROPS.
A QROPS transfer can provide the following benefits for a USA resident:
• No UK income Tax liability on pension income. UK pensions are taxed at source. QROPS is not subject to UK tax.
• QROPS allows your assets to be structured in USD, with income paid in USD. This can be paid to a USA bank account, in USD. A UK pension must be paid in GBP. This leaves you open to currency rate fluctuations outside of your control. QROPS allows you to take control back.
• No need to buy an annuity or ASP (Alternatively Secured Pension) at age 75. This affords you greater control. Your existing UK provision may lead you to take a low rate of return. For example, once a fixed annuity of 3.5%pa is purchased by your UK scheme that would then be your return for life. Your QROPS pension could pay you an income of 10%pa. It also allows your fund to continue growing whilst you take an income. Which can then provide a higher pension income in later years. This is an important factor to hedge against the effect of price inflation on your pension income.
• No Tax liability on your pension fund assets as they continue to grow. Assets in your UK pension fund are subject to Tax, both in the UK and in the USA. Once transferred you’re fund is not subject to Tax, and continues to grow Tax free.
• A far wider range of investments, ranging from cash, unit trusts, shares, commodities, gold, ETF’s, commercial property (including overseas property) and much more.
• Fully portable from country to country.
• You are able to leave the remainder of your pension fund to your heirs on your death. As most people will choose a single Annuity, once in receipt; your UK pension has no value that can be passed to your partner or children. Whereas your QROPS pension can be left to whoever you wish.
• If not vested in an Annuity on your death your pension fund is subject to a 55% tax charge in the UK. A QROPS would pass the total value to your beneficiaries and is not subject to this tax charge.
• A QROPS allows access to benefits from age 50 if you have been outside the UK for 5 tax years or more.
• A QROPS allows access to 30% Cash Lump Sum from age 50 if you have been outside the UK for 5 tax years or more. This is 5% more than allowed under UK pension legislation.
• Pension rights transferred into a HMRC Approved QROPS are protected from UK inheritance tax.
• By moving UK pension benefits to a HMRC Approved QROPS, assets are effectively removed from the UK tax net. For many expatriates the avoidance of UK taxes on pension income and the dangers of additional pension tax levies are an important planning consideration.
Also the treatment of UK pensions under the UK/USA DTA (Double Taxation Agreement) is not good. The UK Government tax interest on your fund before you get it, and the IRS tax the interest on your fund once you have had it. The IRS also tax any Tax Free Lump Sum if you are a US Citizen. If you could move your UK pension to the US, you would be so much better off. Problem is you cannot move a UK pension to the States.
There is a website dedicated to offering advice on QROPS transfers for USA residents and nationals. (http://www.qropsusa.biz)
Moving your UK pension arrangements to a QROPS if suitable given your own particular circumstances, can only improve your position.
Most importantly, once moved to a QROPS you have control over your money. If left in your UK pension arrangements it is highly likely that additional constraints will be put in place which will adversely affect you.