When it comes to living in America, many independent financial advisors (IFAs) have been unwilling to transfer a UK pension into a suitable QROPS – and state that QROPS are “no good” for American residents, citizens or nationals.
To explain, QROPS, or Qualifying Recognised Overseas Pension Schemes, are tax-efficient funds based outside of the UK which can accept a UK pension.
They do not only dramatically increase the flexibility of your UK pension income and investments, but give the following, substantial benefits:
- A tax free lump sum of up to 30% of your fund
- Ability to receive pension income in the currency of your choice
- Ability to consolidate pension into one, easy to manage scheme
- Avoidance of UK’s ‘death taxes’ – which can be as much as 55% of your fund
IFAs unwillingness to advise on QROPS has been alternatively blamed on lack of awareness or lack of confidence. Yet another reason was the “newness” of the schemes, which only came into effect in 2006.
However, since then, confidence has grown in the industry. Yet it remains the duty of the individual to ensure they work with a reputable provider to make sure they are kept in pocket – and on the right side of the law.
QROPS and the law
The legal requirements to stay within the guidelines set out by the US tax authority are complex.
To outline some of the issues, for a QROPS for an American citizen, resident or national, the QROPS should be registered in a jurisdiction which holds a suitable double tax treaty – like with Malta – to ensure the underlying growth is reported to the US authorities.
Malta is not the only option however, and for clients where it would make more sense to be taxed annually, as a foreign grantor trust (rather than defer tax as would happen in Malta), a Guernsey scheme would be more appropriate.
Yet even if the right jurisdiction is chosen for your scheme, your financial advisor needs to make sure you amassed enough foreign tax credits, in order to offset the transfer and ensure it does not become a ‘taxable event.’
In addition, depending on your pension, your transfer may be considered a distribution for American tax purposes – something an in-depth review conducted by an independent financial advisor (IFA) will help you understand.
The importance of experience
All of this means it is essential you consult with a regulated IFA who has experience in the QROPS transfer process for American citizens and nationals.
A regulated IFA with experience in the American market can access your situation and ensure that transferring your fund into a QROPS is the right option for you.
They can highlight and combat all the above considerations – taking into account your fund size, your nationality, and if you may move away from the USA in the future – and explain your annual reporting requirements, whether the transfer would be considered a distribution, and how to offset the transfer with tax credits.
As QROPS Group’s John Cassidy states: “Only an independent, US-regulated firm with international experience will have the understanding to choose the right option.”
QROPS Group holds some of the most experienced QROPS advisors working for the American market.
Each regulated QROPS Group IFA fully understands the transfer process for American citizens and nationals, and has the experience and knowhow to avoid the common hazards associated with these transfers.
Once your situation has been accessed, your QROPS Group advisor can outline the best option for you, and guide you through the entire transfer process.
The experience of each QROPS Group advisor means you can rest assured the right option will be chosen, you will fully understand the process, and that you won’t run into any tax issues in the future.
