The number of expatriates leaving the UK for America is on the increase, and many are arriving with a UK pension left back at home. With the uncertainty of having a lifetime’s worth of savings out of range, and with a cloud of uncertainty hanging over the UK pension landscape, those living in the US are able to transfer their pensions into a Qualifying Recognised Oversea Pension Scheme (QROPS).
QROPS offers a tax-efficient option which can significantly increase income over an extended period, while offering the type of flexibility that UK Chancellor George Osborne is only just attempting to implement back in the UK.
His attempt to increase the options for those in the UK may have come slightly too late to convince many expats to leave their savings there, as the immense deficit facing the entire industry makes savers extremely nervous in relation to the future.
Residents of America
For residents and citizens of the United States, there used to be great complication involved with making a financially viable transfer into a QROPS. This is due to the US authority’s slightly over-zealous and particularly stringent regulations and reporting requirements.
Many Financial Advisors expressed reservations when offering pension advice to those residing on US shores, many advising that the pension is best left in the UK, however this is not the case. Indeed there is a complication in so much that the IRS does not accept transfer of UK pensions into a 401k (US version of defined contribution pension schemes) due to what it deems as the unsuitable nature of the differences in tax structure and benefits (this despite HMRC accepting US schemes).
This would firstly lead to a huge taxation of any funds attempting to be transferred into a US-based scheme from the UK, while also subsequently requiring the payment of tax on any growth or income form the transferred fund.
Double Tax Treaty
There are jurisdictions which allow the transfer of a UK-based pension into a QROPS, while simultaneously holding a double taxation agreement with the US. This means that the transfer can be offset against any foreign tax credits, and the IRS will not deem income from your flexible overseas pension as ‘taxable’.
One such jurisdiction is Malta. This EU member comes with all the regulation and economic credibility that one would hope for, before committing to a transfer, and their treaty with the US has been used by thousands of expats transferring into a QROPS already.
So with the IRS happy, expatriates living in America can benefit from a QROPS in the following ways:
- No UK liability on income tax.
- No tax on growth.
- 30% lump sum tax –free upon retirement.
- Greater investment choices.
- Income transferred in dollars into US accounts to avoid currency fluctuations, particularly against a weakening pound.
- Leave entire fund to family in case of death.
There are common, but always avoidable mistakes that can be made with the completion of a QROPS transfer in order to reap the rewards of these benefits, however by selecting a US-regulated Financial Advisor with sound knowledge on QROPS, all the requirements should be checked off as the transaction progresses.
As an options with flexibility, efficiency, and substantial potential for better long-term growth, a QROPS is now a huge financial product for those residing in America.
