Otto The Squid

I could not possibly comment.

MMcD

Returning to the discussion of US tax on UK "tax-free lump-sum":

IMO - the new changes to the UK Pension Rules won’t provide a way to overcome the Savings Clause (discussed in prior thread posts, above).

Yes, the new rules allow for the “25% lump-sum” to be divided into discrete amounts and for their subsequent, periodic pay-out.
(Previous thread posts above suggested this as a possible way to legitimately overcome the Savings Clause)

If you do that however, per new UK Pension Rules - each individual payment becomes only 25% tax free.
And the remaining three quarters of every payment is then taxable!

In other words - by splitting up the “lump sum” amount - its 100% tax-free (UK) status is lost!
It seems that perk is intrinsically tied to a one-time-only / all-at-once payout.
(Which is probably why it was named ‘lump-sum’ in the first place.)

isi16

Does all this mean I would be better with my civil servant pension lump sum in my UK bank before I head over to the states?

Not a large amount as I've only been in theservice 12 years but enough to keep mme afloat for a year and a bit....

nun

OK this is a bit of a zombie thread, but why not.......

It will certainly be easier for you if you take your UK 25% tax free pension amount before you become subject to US tax. This just avoids having to worry about what constitutes a lump sum or income for the purposes of Article 17 of the treaty. I would also urge you to go over all your other finances and make sure that are configured in a tax efficient way for your future status as a US resident.

Mike1000

I lived in Spain for 11 years and transferred a UK pension fund into a QROPs in the Channel Islands 9 years ago. I'm now living in the USA and from what I can see its almost impossible to move this to a 401 (K) fund in the USA. I am not in receipt of a pension from this QROPs but may be forced to start drawing down in 4 years time when I hit 75. In the USA I believe you have to draw down a 401 (k) much earlier but what rules apply here on a overseas QROPs from UK pension funds.

The clarification I'm looking for is (a) I assume I'd be liable to tax on this pension, (b) will WEPs figure into this, (c) is there some way I can get this into any regular American style pension funds.

nun

You cannot transfer a non-qualified (ie any non-US pension fund) to a qualified US based retirement fund.

You will be liable to US tax on any non-government foreign pension income while you are a US resident and it would count towards WEP if it was from non- social security earnings.

However, I think you might have another issue. I don't think the US has a tax treaty with any of the Channel Islands so I would investigate the current US tax status of your QROPS.

Cook_County

It sounds as if you might have domesticated a foreign grantor trust into the US, so you will be currently taxable on income and gains within the trust. Hopefully the trust re-based its assets before you became US resident and it holds no PFICs within the structure?

nun

Agreed, PFIC, foreign trust and the taxation of current gains in the QROPS might be issues for US tax.

excornishmaid

I'm joining this discussion very late but .... I've been offered a very advantageous buy out from a previous UK employer but am a US resident. I've had all the conversations with financial advisors who have come to the conclusion that the pension cannot be transferred to the US as our 401 (k) will never be a QROPS.

I was directed to a company in the US who say they can transfer the pension to a QROPS in Malta where I can then access it from here.

Anyone have any dealings with this route??

Neillc37

The tax treaties will typically exempt from income transfers of pension assets from one plan to another. They have to be in the same country though. You will find IRS private letter rulings where they spell out that transfers cross country are taxable. Professionals push these pension transfers though so I wondered how they are structured. It seems the foreign pensions are registered in the source country as well so the claim is that there is no transfer to another country. Experts though differ on if this strategy works. I can't see how the transfer could be taxable if the destination was a real pension in the source country. Others here disagree.
So you pays your money and takes your choice (or the IRS takes your money).

I think that the tax treaty with the UK does allow you to take the 25% tax free even on a lump sum payout. Once again pros differ on this and others here disagree. I think it all hinges on 17(1)(b) being exempt from the saving clause and that fact that 17(2) 'notwithstanding' overrides only those things in 17(1) that are at odds (withstand) 17(2).

nun

If there's no transfer to Malta then the US tax free Maltese lump sum is just a "red herring". If there is a transfer the it's taxable.....I don't think you get to choose the most advantageous treaty to apply. Tax is just one potential issue with the QROPS....I'd look at the fees and costs as they can be large. As a US resident you'd be better off to find the best UK option and for your pension. You can access that from the US.

Also if you read the information distributed by US QROPS companies it is very misleading and implies that a UK pension might present US tax problems......when the opposite if the case. The US/UK tax treaty deals with pensions and gains very well and the tax advantaged pension wrapper is recognized by each country.

Neillc37

The claim is that the Maltese pension plan is registered in the UK. In fact the claim is that a QROPS pension is a registered pension in the UK. So it's a transfer from a UK pension to another UK pension. No need to look at the Maltese tax treaty since we never transfer to there. Now of course once the money is in the plan it's also in a plan that's registered in Malta.
I wouldn't bet my money on the argument but many have. If I had moved my money I wouldn't be in a rush to pay tax on the transfer.
Of course your right that the costs are likely very high.
I always wondered if there is a DIY version of this stuff.

excornishmaid

I contacted several financial advisors and pension companies in the UK and because I am no longer a resident the advisors can't advise me and as I don't earn anything in the UK I can't set up an alternative account there. Talk about between a rock and a hard place!

Neillc37

This is a common problem. You can talk to advisers only to have them shutdown once they know you're a US person. You have to find somebody who is licensed to give advice to US residents. They exist. I expect they charge a premium. I know people who have found such advisers to move their pensions in SIPPs while resident in the US.
Even if you find them it's hard to know if they really know the rules as they don't agree with each other.

nun

Yes the US connection can be a big issue, even if it isn't a legitimate one, the companies can have a CYA policy that simply excludes people with US connections. US companies often won't do business with US citizens without a US address which can be a pain for US expats.