5HoursBehind

Given extensive discussions in recent days, I'm slightly nervous about starting another pension thread.. but here goes

I'm a US-based green card holder, have been here about 10 years
Last year, I transferred out of a UK Defined Benefits pension scheme - the proceeds are now sitting with AJ Bell (I'm happy to post details of how I did this if there is interest - It was a journey).
Thanks to advice on this forum, I've been reporting the pension on my FBAR and 8938; I reported an 8833 a number of years ago, but haven't been doing it yearly (Seems like forum suggestions are to do this yearly, so will submit with current tax filing)

I was taking a look through related postings on the site to check if there was anything else I ought to be doing, and was struck by something - there's often a lot of angst about treaties, and forms, and penalties and what stance the IRS might take if you put a comma in the wrong place, But I don't think I've seen anyone describing a real world situation where the US has taken anyone to task about a UK pension; it almost seems like the uncertainty exists precisely because the IRS has been so inscrutably silent on this front.

For sure, I've not read every post, so I'm wondering, has anyone have first hand experience of being investigated or questioned by by US tax authorities in relation to a 'common or garden' UK pension, or are there credible reports of this?

MidAtlantic

So you went from a defined benefit scheme to a SIPP? That would be an unusual move. A defined benefit scheme is normally regarded as the gold plate pension.

I am not aware of any case of the IRS taking any interest in a "common or garden" UK pension, which is why much of the angst about it is unwarranted. Just because I am unaware doesn't mean it hasn't happened.

Hotscot

It's rare that they'd notice but generally if the IRS have flagged an issue they'll send a routine, boring, letter asking for clarification. Then either personally, or with a tax pro, provide that clarification.
Forget and move on.

Even if you feel you've made mistakes in past filings they generally time out after three years unless you had genuine intent to defraud.

If, for whatever reason they want to apply significant penalties use the First Time Abatement 'get out of jail free' card.

https://www.irs.gov/businesses/small...trative-waiver

Basically you write a note asking nicely they don't fine you.

(And yes, briefly, why transfer out of the original scheme?)

Wirksworth

There are at least 2 reasons to transfer out of a defined benefit from a UK perspective ( and also reasons not to - primarily being one then takes the investment risk) - 1 The transfer sums offered since bond yields went so low have been high - can be as much as 40X the DB pension. 2 A SIPP can be transferred on death very tax efficiently depending on the age at death. It is most tax efficient to die before the age of 75 !. I am not in a position to say how the Tax element works for a US resident or citizen and no doubt it will be complex.

What seems debatable is if a transfer from a DB to a SIPP then results in the need to file 3520/A forms - it would be helpful if Forum members have had Professional opinions on this if they could share these openly or via PM

Hotscot

The Foreign Trust and Form 3520 question?
Been a lot of that recently for some reason...

Cook_County

You'd report the distribution on your 1040. You'd report both pension plans on the 8938. You would file an 8833 to argue that the distribution is not US taxable. You'd report the SIPP on the FBAR. There is the debate about 3520 and 3520-A filing. Given the attitude of the IRS, you might file a 3520 and 3520-A. “Determining how a foreign retirement account should be reported is time consuming even for experts”. These are not my words, but those of the US Government Accountability Office (page 46 here: https://www.gao.gov/assets/690/689773.pdf).

Hotscot

Good find Cook

5HoursBehind

Thanks to all for the input, very helpful as always
FBAR Yes, 8938 Yes, 8833 yes,
Cook County - 1040 distribution? - I'm hoping I don't have to - the pension was a direct transfer between the two schemes - nothing passed through my hands, would that help me avoid? (still reading the doc you sent, very interesting ) ;

Hotscot, on the 3250 question, I wasn't going to go there specifically, but you wouldn't let it lie! - despite all the ruckus, It doesn't doesn't seem like there's a credible account of the IRS ever requiring this for a regular UK pension?

On the DB transfer out - Wirksworth captured the gist my rationale. The scheme would reduce it's payout by 50% to my spouse after I died, and then to zero after she passed, transferring it to a SIPP preserves its inheritance value indefinitely for our offspring; I'm not planning to live forever., so I calculate this will probably work out better for them

Hotscot

Sounds good.

newadventure

5HoursBehind In your initial post, you volunteered to provide details of how you did the transfer. I would be interested in how you went about this/what you learned

Wirksworth

Newadventure- I went through the fairly expensive exercise (£1500 approx) of looking at transfer from a DB to my SIPP. There is a requirement now for such an exercise as there are plenty of examples of a transfer to a crocked scheme - The stable door is getting bolted as always a bit late and people have lost money. Clearly this isn't the case of a transfer to a reputable SIPP provider. The exercise I had done looked at the investment yield needed in a SIPP to equate to the DB pension with all of the DB scheme details such as Inflation protection, widows benefit etc.
Overall I concluded that although there are benefits in terms of Tax on death the inflation protection and Widows benefit ( my wife to be is 10 years younger than me) plus the spread of risk as DB scheme provides to my SIPP And other investments resulted in me sticking with my DB. I was also swayed by the Life Time Allowance treatment of a DB scheme which is only 20X the DB Pension whereas the more realistic figure is 35X. A SIPP gets counted as the value at a Crystalising event. This if your well funded in your Pensions pots is another factor which an expert needs to look at - All in all it isn't a straightforward issue.

Hotscot

You did a transfer Whirksworth?
You say you paid someone £1500 to look at it.

newadventure

Thanks Wirksworth. I had forgotten the necessity of getting 'expert' opinion, although doesn't this depend on the value being transferred? I have a DB scheme from a job i held for 3-4 yrs many moons ago so it isn't worth a lot and i thought it might be tidier to add to my SIPP

Wirksworth

Hotscot- No I decided to keep with my DB although several of my ex colleagues in the same scheme did transfer - It really is dependant on the individual variables. The big swing factor in favour is if you don't have a need for the Pension as a SIPP is an excellent ( UK) Tax saving vehicle for the transfer of wealth to ones offspring.

MidAtlantic

If you are able to transfer out of your defined benefit scheme (you can't transfer from unfunded schemes such as the NHS scheme,) and this involves cash equivalent transfer value of £30,000 or over, you will be required to get regulated financial advice first.

https://www.moneyadviceservice.org.u...pension-scheme