Scotsman In Texas

I have a stakeholder pension from years ago when I lived in the UK. I have not made contributions for years. The position I have taken is that I claim a treaty exemption for the pension, and report it's value on my FBAR and 8938.

(I am aware that their is some fuzziness to the IRS rules around pensions and the correct position to take depends on who you ask - and the position I have taken is to claim the treaty exemption).

The question is if there is any advantage to moving it to a SIPP? I am attracted by the wider range of investment options, but not if there is a US tax disadvantage.

Thank you!

Cook_County

Most commentators do not believe that foreign trust returns are required for most UK employer sponsored pension plans. This is because US regulations state that where the employee was paying no more into a plan than the employer that such a plan is not treated as having a requirement to file foreign grantor trust returns with the IRS.This rule only applies where a specific UK pension plan meets the US definition of a “non-exempt employees trust”. There is some debate (and no clarity) among professional advisers as to whether a SIPP could ever meet this definition. Nonetheless, assuming a SIPP is:

• A “non-exempt employees trust”, and
• The employee did not contribute more than half of the amounts invested in the plan
  US foreign trust returns would not be required.
  

The IRS explain this rule on page 4 here (from a 1997 memorandum) (https://www.irs.gov/pub/lanoa/pmta00173_6973.pdf):

"Section 402(b) (3)provides that a beneficiary of any trust described in § 402(b) (1) is notconsidered the owner of any portion of the trust under subpart E of part I ofsubchapter J. Section 1.402(b)- l(b) (6) of the regulations provides that wherecontributions made by the employee are not incidental when compared tocontributions made by the employer, the beneficiary shall be considered to bethe owner of the portion of the trust attributable to contributions made by theemployee, if the applicable requirements of subpart E, part I, subchapter J,chapter I of the Code are satisfied. For purposes of this rule, contributions madeby an employee are not incidental when compared to contributions made by theemployer if the employee's total contributions as of any date exceed theemployer's total contributions on behalf of the employee as of that date."

Scotsman In Texas

Thanks! That’s really interesting and first time I have seen the actual piece of tax code that relates to UK pensions. The 50% rule seems particularly nebulous and hard to track, particularly for pensions from a long time ago when the owner may have had nothing to do with the US.

Seems there may be a few more grey areas around a SIPP than a stakeholder pension, so perhaps best to just leave it be for now.