USA QROPS v SIPP FAQ
Here are a few of the most common questions, specific to those resident in the USA, that arise from those with UK pensions that are now living in the USA. This page answers USA QROPS v SIPP FAQ (Frequently Asked Questions).
USA QROPS v SIPP FAQ No1 – A 401k and an IRA retirement plan, commonly used in the US, will not accept payments originating from a UK pension scheme.
Since 9th March 2017, any transfer to a QROPS by a US resident will result in a 25% Overseas Tax Charge. QROPS are no longer a viable option for US resident.
For those with exising QROPS-It depends. Any advice should have taken into account your pension tax credits in the USA. To answer this requires specialist advice . It is worth noting that these previous QROPS transfers have not been tested through the courts and so there are potential grey areas; for example, if you are already a US resident then the IRS would not have confirmed in correspondence that a transfer from a UK pensions to an overseas QROPS would qualify as an “eligible rollover distribution (Section 402c)”.
Those that hold UK schemes can refer to the IRS release in May 2010 which states:
“If an employer pension scheme in the United Kingdom and a SIPP are both pension schemes within the meaning of Article 3(1)(O), then a transfer of income earned by the employer pension scheme to the SIPP would not be a taxable event in the United States.”
In a recent case of an employee of DeVere , the hotel group in the UK, who now lived in the US, she was able to move her pension without penalty. She has been advised to use RL360 initially and we performed a comparison for her against some other options so that she was able to make an informed decision.
The Double Taxation Agreement or Double Tax Treaty (DTT) between the UK and the US is long established and the way a SIPP and other UK pensions are treated for tax by a resident in the US is also clear. Therefore, a British pension internal state transfer is allowable and no tax should be payable on transfer to a SIPP.
USA QROPS v SIPP FAQ No2 –
Since 9th March 2017, any transfer to a QROPS by a US resident will result in a 25% Overseas Tax Charge. QROPS are no longer a viable option for US resident. The IRS have indicated that under ordinary circumstances previous transfers between states (UK and Malta in this case) would not have come under Article 18(1) of the 2001 United Kingdom-United States Double Tax Treaty, and the distribution may be viewed as taxable, this is because a transfer from a UK pensions to an overseas QROPS would not qualify as an “eligible rollover distribution (Section 402c)”.
Probably, and a SIPP is certainly a lot less risky as it definitely qualifies under Article 18(1) of the 2001 United Kingdom-United States Double Tax Treaty. However, very large UK pension funds (approaching £1 million) have to consider the Lifetime Allowance, that has additional tax considerations. Additionally, there will always be client specific circumstances that need to be considered like US pension tax credits. There is no “one size fits all”.
This question comes up as a result of overseas advisers, outside both Britain and the US, marketing british pension transfers to usually Malta ( now no longer viable from 9th March 2017 ). In fact it is the third most USA QROPS v SIPP FAQ!
Beware of hidden commissions that are not declared to you, the client. Our view is that only an Advisor, regulated in both the UK and registered with the SEC whose ADV includes pension advice and does not rule it out, can advise on all the options in tandem with a US tax advisor. Further, only a UK registered advisor will have access to the full pension market to get the best deal for the client.
No, for the reasons already mentioned. However, this USA QROPS v SIPP FAQ is linked to Malta trustees and Royal London 360 investment bonds, also known as RL360. You need to have this advice reviewed. In two cases we have come across we have had to reverse the pension transfer previously recommended and there were potentially large surrender penalties applied due to hidden commissions that were not declared to the client. We would like to highlight that this is no reflection on Maltese trustees or indeed on Royal London 360 ( RL360 )who had done nothing wrong. The fault was entirely at the door of the advisor who claimed they were registered in the USA, but in fact were declaring that UK pension transfers did not come under the SEC registration and so in fact the business was being processed overseas outside of any UK or US regulation.
Disclaimer on the page USA QROPS v SIPP FAQ (Frequently Asked Questions)
Aisa International is not licensed to give tax advice on pension transfer matters – nothing on this page or website should be construed as personal tax advice in the US but only as guidance on the questions you should be seeking answers to.