theOAP

As you may already know, you will be showing this on Form 8833. If you're not familiar with 8833, you may want to have a look and decide now how you will complete it. This will be your one shot at explaining, and it will have to be bullet proof in terms of an explanation. It's likely any following discussion will be between you and a computer.

Do we have this right?
UK Pension Transfer
Advisory fee 1% every year on fund value, plus

STM Fee
Establishment fee £1,600.00, plus
Annual administration fee every year £1,600.00,

If you go with Margetts, there's an additional
Initial charge on investment 5% Bid/Offer spread, plus
Annual management charge every year 1.475%

You don't have to respond, but can we assume you will be closing the account after 1 year and collecting the balance remaining?

Not that it matters to the Malta account, but STM is registered in Gibraltar. Thus far, they have not registered with FATCA (they have no GIIN) in either Malta or Gibraltar.

kansanbrit

Thanks for the info, very helpful. Please see exception 2. on the webpage below which I think contracticts your view on Form 8833 being necessary...or is this not applicable to citizens ?

Publication 519 - U.S. Tax Guide for Aliens - Reporting Treaty Benefits Claimed

I will see how well the investments grow and take my money out as tax/profit efficiently as possible.

theOAP

I was under the impression you were a US Citizen. The link you highlight is U.S. Tax Guide for Aliens.

Ah, missed your edit! No, a non-resident Alien is not the same as a USC, so different rules apply.

kansanbrit

I just checked the regulation here...

http://www.gpo.gov/fdsys/pkg/CFR-201...301-6114-1.pdf

Page 165 Section (c) (iv) gives the same exception and I think this relates to citizens ?

theOAP

I have no idea what your link refers to.

Suggestion: Look on the following link for Form 8833; scroll down to page 3 which are the General Instructions; following are the "Exceptions from reporting". I find no reference to your clause about pensions (as found on your other links) included.


http://www.irs.gov/pub/irs-pdf/f8833.pdf

EDIT: I follow you now. From the instructions for 8833 which refers to your link:
See Regulations section 301.6114-1(c) for examples of treaty-based return positions taken by taxpayers for which they are not required to make disclosure.

It's your call. If you are confident with this, proceed. You originally stated (Post 104) "I will report the income on my 1040, show that it is not taxable......". I assume you have plans as to how you will do this. It's your tax return!

kansanbrit

This is what 8833 instructions states:

Exceptions from reporting. See Regulations section 301.6114-1(c) for examples of treaty-based return positions taken by taxpayers for which they are not required to make disclosure.

This is Regulations section 301.6114-1(c) :

http://www.gpo.gov/fdsys/pkg/CFR-201...301-6114-1.pdf

theOAP

Yes. I edited my reply but the posts crossed. See my edit in #110.

kansanbrit

Unless I learn something else before filing I will probably fill in the lump sum amount in 1040 Line 16a and enter zero in 16b.

Anyway thanks for your input 'theOAP'.

MidAtlantic

If the IRS challenge you it is more likely to be $15k plus interest plus an audit. However, I fully appreciate that you have done a lot of research and preparation and maybe it will work. Good luck!

nun

I don't know the fee structure of your current UK pension, but the QROPS looks to be ridiculously high. I would never invest in something so expensive. It looks like a total rip off to me. Run away from anything that has such high annual fees and a 5% front end load.

kansanbrit

Where is your money ?

kodokan

For contrast, the annual management charge on my Aviva (ex-Norwich Union pension) is 0.55%; there are no other charges. I have a huge list of fund choices and there's a neat online interface where I can shuffle them about to my heart's content, so am quite happy to let it sit there for another decade or so until I can withdraw the money freely at 55. It'll all have to be declared as income and taxed accordingly - unless kansanbrit comes back and tells us that the tax-free lump sum UK rule is allowed - but I'm expecting to have a window between finishing work and getting Social Security in which to withdraw funds for almost nothing.

nun

My money is in low cost index funds in the US. With fees as high as those on your QROPS your returns will be greatly reduced. If you can get a more reasonable fee structure in the UK you might be better off paying US tax on any lump sum and using a period of low income and US deductions and allowances to reduce any US tax bill.

theOAP

As far as a UK pension is concerned, STM (via it's published advice as presented by the George Hayduk statement - see post #80) claims an interpretation of the IRS/US Code definition of "lump sum" is the key to voiding Article 17.2 (and hence the saving clause on lump sums) of the US/UK treaty.

Per George Hayduk's opinion:
“Lump sum” is not defined in the Treaty. Where a term is not defined in a treaty it shall take on the meaning it has under the laws of the State (US) attempting to tax the relevant transaction. Under US tax law “lump sum” essentially means a complete liquidation of pension or retirement rights (IRC Sec. 402(d)(4)(A)). While the term “lump sum” is often used in the UK to refer to 25% tax-free distributions, lump sum clearly takes on a different meaning in the UK as the complete pension has not been liquidated. The Plan or its predecessor UK Plan otherwise remains intact. It is my opinion that Article 17.2 does not apply.....

As other posters have mentioned, this is the realm of the tax attorneys, private letter determinations, and tax courts.


EDIT: It's interesting to note 402(d)(4)(A) makes no mention of lump sums. 402(e)(4)(D) speaks of lump sum distributions, but related to "exempt trusts" and has very specific rules regarding lump sum distributions.

kansanbrit

In Malta you can take 30% TFLS instead of 25% and you do not have to take any pension at that time. Also you never have to buy an annuity so in the event of death the remaining funds goes into the death estate.

Of course with such big changes being introduced to the UK pensions next April there will be more options.