theOAP

Final, final thought:

If the pension is transferred "as whole" to Malta, do the rules in Malta allow for a 25/30% "tax free" lump sum distribution from an active pension?

nun

The exclusion of Article 17, 1b of the Maltese treaty from the savings clause is the same a the UK treaty, but there is no lump sum provision. So it appears that any tax free Maltese distribution is also US tax free.

I have read some if the sites of various QROPS firms and they omit the protections available under the UK treaty and claim that Maltese QROPS are US qualified. A US qualified pension plan must be organized under US legislation and so a plan outside the US is by definition not US qualified. If the QROP can be done before the owner becomes liable to US taxation there might be some potential US tax benefits, as long as Malta doesn't tax the distributions. The bigger problem may well be the fees and expenses of the QROPS.

kodokan

Kansanbrit had been a US citizen for quite some years before the money move to Malta took place.

I'm enjoying watching this unfold, and attempting to follow the legal reasoning (but still just planning to leave my zombie funds in the UK and drain them down in tax-sensible annual chunks after I turn 55).

theOAP

If they're supposedly US qualified, then what about FATCA reporting.

No UK Fund that I know of claims to be a qualified US pension plan. A quick look at the UK FATCA IGA, Annex 2 where excluded FI rules and exemptions are listed shows a brief 5 liner on page 37 basically saying if it's a UK Registered retirement fund under beneficial owners, it's exempt. There's a brief 2 paragraphs on page 39 saying provided the fund meets basic requirements, it's an exempt product.

On to the Malta FATCA IGA, and you find starting on page 40 the requirements for "Funds that Qualify as Exempt Beneficial Owners.", followed by definitions and requirements for "A. Treaty-Qualified Retirement Fund, B. Broad Participation Retirement Fund.", and on to page 41 "C. Narrow Participation Retirement Fund.", and on to page 42 "D. Pension Fund of an Exempt Beneficial Owner."

On page 48 you find "Accounts Excluded from Financial Accounts.", and on to page 49 you find the requirements for "1. Retirement and Pension Account."

It would appear the US is aware of the range of Malta funds. If an account owner has a US address it is possible (depending on the interpretation of the above) that the account would be reported under FATCA to the IRS.

Too much for me to decipher.

I really do hope kansanbrit can discover the real legislation that will allow the fund to meet US reporting standards and offer a 30% tax free lump sum in the US; but until they know precisely how it works, I can only wish them luck.

lansbury

In the part of your post I quoted your expert referred to the UK Technical Explanation for the way the IRS was thinking.

kansanbrit

I did find this as well which I feel gives a little hope....

The Taxation of Foreign Pension and Annuity Distributions

But a lot depends on whether one is an optimist or a pessimist :-)

kansanbrit

By the way is this document common knowledge ?

https://www.gov.uk/government/upload...udget_2014.pdf

nun

The Maltese treaty certainly does allow for tax free pension income in the same way a as the UK treaty allows a ROTH IRA to be tax free in the UK. However, I worry at the misinformation about the US status of UK pensions that many of the QROPS companies have on their websites and the assumption that a cross border QROPS transfer is not a US taxable event.

JAJ

A lot of interesting issues raised here, many of which go well beyond the scope of a free forum and may ultimately require a tax court to resolve. It is to be hoped that anyone contemplating this has a good tax attorney.

General comment. It's been noted on other threads that the IRS do not normally try to enforce what may (or may not be) the letter of the law on foreign pensions in "everyday" cases. Perhaps caution against taking actions that would move one's situation from "everyday" to "unusual". At least not without good advice from a tax attorney, both now, and when the actual lump sum is received. And also making sure there is compliance with all information reporting required. Is it really worth it in order to avoid paying U.S. income tax on the lump sum?

kansanbrit

+/-$15K makes a lot of difference to me ;-)

JAJ

Of course.
But presumably the fees for advice, etc, have offset part of this and you understand that there is always a risk (however low) of IRS questions/audit?

nun

What are the fees associated with the QROPS? The fees and the risks of the QROPS must be considered.

MidAtlantic

$15k would not go far in paying for the kind of tax attorney needed in a case like this if it became a dispute with the IRS.

kansanbrit

Why would I want to waste money on an attorney. I will report the income on my 1040, show that it is not taxable and if they question it I will discuss it with them. If they conclude it should be taxed then I will pay the tax. As far as I can see I have nothing to lose and $15K to gain.

kansanbrit

These are the fees via UK Pension Transfer LLC:

FEE TYPE FEE
UK Pension Transfer LLC
Advisory fee 1% p.a. (in advance, based initially on the Transfer Value and subsequently on the fund value)
STM Malta
Establishment fee £1,600.00
Annual administration fee £1,600.00
Margetts Fund Management
Initial charge on investment 5% Bid/Offer spread (note 2)
Annual management charge 1.475% (included in unit pricing so all performance is net of charges)


Note 1: STM charges are adjusted for inflation periodically.
Note 2: If you were to invest your new QROPS in Margetts, the funds will be purchased at the “offer” (buy) price, but as required by the regulator, will be valued on a “bid” basis. The bid/offer spread, in common with most UK funds, is 5%. However, this is not crystallised until you sell the units of the fund when taking benefit. At no cost you can vary your holdings, between the different Margetts’ funds, in line with your chosen risk rating.