Pensions and PFICs
 

Hi all,

Trying to get my finances sorted out in anticipation of the move to the USA from the UK. I've read about PFICs, they sound like a PFICing pain in the neck! But, I also read that funds inside a pension aren't subject to the PFIC tax, is that right? Does that apply to all recognised UK pensions or only workplace pensions? Are personal, stakeholder, SIPP, etc various private pensions subject to the PFIC tax?

I also have a pension in Luxembourg but I imagine that one will take a bit more working out....!

Cheers :)

Re: Pensions and PFICs
 

Money inside recognized UK pension wrappers is protected from US tax until withdrawals are made and they are taxed as income by the IRS and/or the UK according to domestic laws and the DT Treaty. Work place pensions are definitely covered, personal pensions etc are debatable. ISAs are definitely not covered.

For the Luxembourg pension you will have to look at the US/Luxembourg tax treaty

Re: Pensions and PFICs
 

Hi nun,
Thanks for the clarification? Why are personal pensions debatable, when do they not escape the PFIC problem?
Cheers :)

Re: Pensions and PFICs
 

There is a view that SIPPs and personal pensions that don't get employer contributions are not pensions under the treaty so are treated like ISAs ie the tax free wrapper is invisible to the IRS. But many tax professionals think that they are "treaty pensions". There might also be different tax treatment in some states and you might need to file trust forms. It's an area that needs professional advice to make sure you claim the correct treaty provisions and file the right forms.

Re: Pensions and PFICs
 

Hi Nun,
Interesting. But if the contributions come from an employer then it should be okay, I presume. I'll definitely need someone to do my tax forms so I'll make sure they know about this.
Cheers :)

Re: Pensions and PFICs
 

My understanding is that so long as the pension is an HRMC recognized UK pension product then the funds within the pension escape PFIC rules, and taxation in general until the funds are distributed and that would be in cash subject to ordinary income tax. I have never heard of pensions with no employer contribution being excluded. Although any part of a pension that is 100% funded voluntarily by an individual with no contribution from an employer (or any other source) do escape the WEP calculations if/when you collect US social security.

Re: Pensions and PFICs
 

Thanks Glasgow Girl.