The USA is a popular destination for UK expats with over 1.5 Million of them residing in the USA. On top of that there are thousands of US residents and citizens who have worked in the UK and have returned home. However until recently it was impossible for US residents to transfer a UK pension to a QROPS or Qualifying Recognised Overseas Pension Scheme due to the strict reporting requirements of the IRS. Understanding these restrictions and reporting requirements of the IRS, a new IRS friendly and compliant QROPS USA Trust was created with the USA resident in mind, enabling USA residents to take advantage of the many benefits of a USA QROPS.
QROPS advisers will confirm that the HM Revenue and Customs list of QROPS has included several US 401(k) pension schemes for years, and, in principle, QROPS transfers were available to US residents as far as HMRC was concerned.
Nevertheless, HMRC’s counterpart in the USA – the Internal Revenue Service (IRS) – has steadfastly refused to recognise QROPS transfers in to a QROPS USA 401(k) pension by UK ex pats living there on the grounds the QROPS trust structure is not legal.
A similar no-go status was imposed on US nationals overseas transferring from a 401(k) to a QROPS. QROPS 401(k) & IRA transfers. Both triggered IRS tax penalties on any funds transferred.
This is likely to tighten up even more from January 2013, when the Foreign Account Tax Compliance Act comes in to force and practically bars all US residents and US nationals living outside the country from transferring their pensions in to a QROPS.
Although this complicates any QROPS transfer in or out of a 401(k) pension, some providers have restructured the master trust that manages a QROPS in to a IRS-friendly and compliant legal entity.
This is a legal and robust workaround that opens QROPS USA investment as a two-way street between transferring from a UK pension to a US QROPS and from a US 401(k) to an offshore QROPS.
Although the framework is now in place, QROPS USA are still tied up in red tape and successful transfers involve patience, specialist skill and expertise.
A QROPS transfer can provide the following benefits:
-No UK Tax liability on income. UK pensions are taxed at source, QROPS are not subject to UK Tax and sometimes can be free of income tax.
-As most people will choose a single Annuity or Alternatively Secured Pension, your UK pension has no value to your partner or children upon death. Whereas your QROPS pension can be left to whoever you wish.
-Pension rights transferred into a HMRC approved QROPS are protected from UK Inheritance Tax.
-No need to buy an annuity or ASP (Alternatively Secured Pension) at age 75. This affords you greater control. Your existing UK pension may lead you to take a low rate of return. For example, once a fixed annuity of 3.5% p.a.is purchased by your UK scheme that would then be your return for life. Your QROPS pension could pay you an income of 10% p.a. It also allows your fund to continue to grow whilst you take an income. Which can then provide a higher pension income in later years.
-Out of scope of future tax increases and changes in UK legislation. The coalition government and the proposed pension reforms including increasing retirement age, taxes etc.
-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.
-No Tax liability on your pension fund assets as they continue to grow. Assets in your UK pension fund are subject to tax. Once transferred your fund is not subject to tax, and continues to grow Tax free.
-More investment freedom and control, ranging from cash, unit trusts, shares commodities, gold, ETF´s, property (including overseas property) QROPS offer much higher growth potential than conventional UK pensions.
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 and restrictions are an important planning consideration.
Contact us today to help secure your future retirement, simply complete the form below or e-mail us at info@qropsusa.co.uk Alternatively call us on (+44)020 3239 3219 (UK) or (+34)657 360 286 (Spain). Remember we do not have access to your pension either before, during or after the transfer. Qualified and regulated advisers will prepare all the paperwork for your transfer.
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