Universal Access Plan Review

Lisa Smith, BA (Hons), CeFA
By

The Universal Access Plan offers American taxpayers a chance to save tax while putting money away for retirement.

The aim is to solve the problem of the Internal Revenue Service (IRS) makes saving unattractive for American expats by demanding extra tax on offshore investments.

The Universal Access Plan is a tax-friendly investment for US expats, Accidental Americans and for foreigners working in the US.

What Is The Universal Access Plan?

The Universal Access Plan is a defined contribution or DC contract written under trust in the Channel Island financial centre of Guernsey.

The plan pays benefits from the saver’s 55th birthday.

Any regular income or lump sum withdrawals are based on how much the invested fund is worth and can rise or fall in line with the fund value.

Why Is The Universal Access Plan Good For Expats?

The Universal Access Plan is a tax-efficient way to save for retirement for expats who pay US taxes.

The expat opportunity is a two-way street and covers anyone filing tax returns with the IRS from overseas, like US expats and Accidental Americans, or foreign expats in the US who hold a green card.

The IRS will not consider the plan a PFICS (passive foreign investment company) – a financial wrapper that allows US investors to defer tax generated in low-tax countries. This removes the risk of the IRS imposing tax penalties.

The plan is designed to work smoothly under US investment tax rules.

The fund will grow with paying any US taxes, maximising the value of expat retirement savings.

Why Choose A Savings Plan From Guernsey?

Guernsey is a long-established and innovative financial centre that is much respected on the internal scene.

The centre is tightly regulated by the Guernsey Financial Services Commission, which offers consumer safeguards, financial integrity and economic stability.

Guernsey is not part of the European Union but enjoys a close relationship with Europe through Britain’s membership. The island is a self-governing British dependency and is likely to see ties with the EU change when the Brexit transition period ends on December 31, 2020.

However, this should not affect the plan’s tax status with the IRS.

As a bonus, the plan is tax-treated as a QNUPS (Qualifying Non-UK Pension Scheme) for British domiciled retirement savers. This places the fund outside of the saver’s estate for inheritance tax in the UK.

The plan also sidesteps pension drawdown rules in the US and UK, so any contributions do not affect other savings subject to caps, like the lifetime allowance or annual allowance restrictions on UK pensions. 

How Does The Universal Access Plan Work?

The Universal Access Plan is a flexible savings and investment contract.

Investors can:

  • Transfer cash and assets in
  • Make regular contributions
  • Pay in one-off lump sums

The money and assets grow without tax.

At the plan retirement age, savers can opt to take a lump sum of up to 30% of the fund value. Depending on the saver’s personal circumstances, the lump sum may be liable to tax.

The remaining funds can go towards a US guaranteed income annuity or remain invested to provide an income.

If the saver dies leaving unspent funds in the plan, the balance can pass to family or loved ones.

Setting Up The Universal Access Plan

After discussing options with an IFA, the plan administrators will review an application to check the investment is suitable for the saver’s financial circumstances.

The saver must appoint a fund manager, who can be their IFA or rely on the plan’s professional fund managers.

Fees and charges

The Universal Access Plan has a one-off set-up fee and annual administration and fund management charges.

The Universal Access Plan And Tax

Universal Access Plan inbound funds are already from taxed sources, so do not attract any further liability.

While invested in the plan, any growth is tax-free in the US and UK. The rules may differ for other countries.

Outbound funds may be taxed as income, depending on the saver’s tax status with the IRS and/or their country of residence.

Best advice is for savers to discuss drawdown arrangements with an IFA or suitably qualified tax professional before taking any money from the plan.

US taxpayers must report the value of their Universal Access Plan on an FBAR and Form 8938 each year. The administrators must also report the personal and financial details of any plan held by a US taxpayer under the Foreign Account Tax Compliance Act (FATCA).

The IRS tax-treats the plan as a non-qualified annuity.

Universal Access Plan Features And Benefits

The Universal Access Plan is packed with features for retirement savers:

Outside UK and US pension contribution restrictions

Savings into the Universal Access Plan are uncapped and are separate from any pension allowances in the UK or USA.

Savers can make lump sum or regular contributions.

The plan also accepts in specie transfers of assets.

The Universal Access Plan has an open-ended fund size.

Currencies

The Universal Access Plan is available in US dollars, UK pounds or the euro. Charges are deducted as in sterling regardless of the denomination of the fund

Benefits paid gross

Any payments from the Universal Access Plan without any tax deducted in the nominated currency.

Loan option 

It’s possible to take a loan of up to 30% of the Universal Access Fund. This could result in tax consequences and may affect the size of the fund on retirement. Any loan is likely to be taxable for US retirement savers.

30% lump sum on retirement

The largest lump sum payment is 30% of the fund.

Transfers from other pensions

Savers can choose to transfer funds from other schemes, but with some restrictions:

  • The existing scheme must allow transfers
  • Transfers from UK registered schemes are not allowed if the contributions are tax-relieved
  • Transfers from US IRA or pensions are not permitted
  • Transfers from schemes outside of Guernsey may need approval from Guernsey’s tax authority

What Happens To The Pension When You Die?

The Universal Access Plan has two scenarios to cater for unspent funds if you die:

Death before retirement

Any unspent fund is passed to dependents or nominated beneficiaries as a lump sum or annuity

Death after retirement

The pension is paid as an income or lump sum, depending on any election made prior to death. 

Summary

The Universal Access Plan is designed to ease tax issues for US expats and expats from other countries who have moved to the US and who are saving for retirement.

The plan resolves a key issue of how cash and investments held in trust are taxed in the US.

Another benefit is the plan does not shatter contribution caps to UK or US pension plans.

Key features of the Plan

  • This is a contract and NOT a trust-based pension scheme
  • Investment flexibility which may include a full range of asset classes
  • Investments in the scheme are not classed as PFICs by the IRS
  • US/UK Allowances and Annual Allowance limits do not apply
  • No limit on contributions
  • Assets held within the US Plan grow tax efficient manner
  • UK s58 (1) (d) IHTA Compliant as such settled property is not deemed ‘relevant property’ for IHT purposes
  • UA Plan proceeds paid out gross
  • Provision of residual accumulated funds to your dependents on your death
  • Flexible options at retirement
  • Access to professional investment management and holistic retirement planning services
  • Simple tax reporting as not a trust based Plan
  • Assets contributed to the UA Plan remain separated from Pensioneer
  • PCLS of up to 30% on retirement

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1 thought on “Universal Access Plan Review”

  1. On the face of it this looks very attractive to UK res and domiciled people who want tax efficient saving but can’t contribute any more to their domestic pension pots. Is that correct?

    Reply

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