The USA is a favourite destination for UK ex pats, but transferring a pension in to a QROPS is fraught with problems for stateside residents and ex pats.
For the first time, some QROPS are now available that tackle some of the legal and administrative issues that have stopped US residents and nationals from picking up the tax and investment benefits of transferring to a QROPS.
QROPS advisers will confirm that the HM Revenue and Customs list of QROPS has included several US 401(k) pension schemes more or less from day one in April, 2006, and, in principle, transfers were available to US nationals living abroad and UK ex pats moving to the US.
Nevertheless, HMRC’s counterpart in the USA – the Inland 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.
The question for US citizens or expat US tax residents therefore is to what extent they are liable for either US or UK Income Taxes when they take their retirement benefits from a scheme which has been registered in the UK; and also, where the plan member is not resident in the US, whether and to what extent any income and/or gains would be subject to US Federal Income Tax.
These issues are complex and require consultation with specialists who know the tax situation in both countries and how they complement each other, as well as knowing the exact circumstances of the individual. Pension solutions can vary depending on the type of pension arrangement and any previously claimed relief.
A USA compliant QROPS can give these benefits
- Offsetting foreign tax credits against the taxable income arising on the transfer to the plan.
- Protecting investment growth occurring within the QROPS from US Federal Income Tax.
- The opportunity to draw an initial lump sum of a value up to 30% of the fund.
- The possibility of drawing additional lump sums, as a result of the Double Tax Treaty, which may not be liable for US Federal Income Tax.
- Exemption from taxation on investment growth on distributions, income and gains within the QROPS.
- Provision of lump sum death benefits to beneficiaries
Who is eligible for a USA compliant QROPS?
- A UK national moving to the US
- A US national who has worked in the UK and is moving back to the US
- A US national living outside the US
- A US national who has worked in the UK and is now resident outside the US and the UK
- A Green Card holder who is resident outside the US and the UK
QROPS.net are the leaders in QROPS advice and have been advising USA clients for a number of years. We are the pioneers in developing a USA compliant QROPS, therefore can give you the very best and latest information and guidance. Contact QROPS.net today to find out about QROPS.