iceflow

Folks,
I believe it is possible to take a percentage of a private pension as a tax free lump sum up to a certain amount. Question.....is it considered tax free in the US?
I'm new at this...but....tax free money sounds the way to go, but I need to do the math on the back end to see the overall effect on the reduced annual pension set against the value of the lump sum set against life expectancy. Any useful links to this subject much appreciated.

As always, thanks for the viewpoints.

LotusEater33

Try QROPS

I think you have to be over 55 to get any of the cash

Bob

In the US, I think the general consensus is, this is a waste of time.

Welshgator

QROPS doesn't seem to be an option under the current setup last time I looked into it.

I am interested in any information on lump sum tax though. One of my UK private pension funds is planning to wind up and sell the fund out to a regulated insurance company that would take over responsibility for paying benefits. Sounds like I would be offered an enhanced transfer value fund where I could have flexible access to benefits or taking a wind up lump sum.

I looked into transferring using QROPS in 2013 but my current US retirement investment plan wouldn't be able to accept a transfer from the UK fund.

The guaranteed transfer value was 53000 GBP back then, my forecast pension payment at normal retirement age would only be 630 GBPper annum. I'm not sure how that adds up but I figure at 630 pounds pa it would take me 84 years after retiring to retrieve 53000 GBP....lol. Seems more sense to take a lump sum (or several smaller sums) even with paying taxes up front.

I'll be hearing more details on the fund wind up over the next month and hopefully can discuss some of the tax implications with their advisers during that time.

I assume if there is any tax paid in the UK that I will not be taxed in the US, otherwise I should be able to claim a tax refund in the UK as being non-resident. Be glad to hear if anyone has any tax related info or experiences in this regard.

Steve_I

Nope, it's considered as income and taxable.... My wife has a small pension from the NHS in the UK as she worked there for ten years and we took advice about it (albeit from H&R Block)! To be fair to them, they did research it and the guy had proof printed out to show me. I think we ended up losing about a third of the lump sum. Every year now I have to declare the monthly income too and as we both still work, we usually end up with a hefty bill. Sorry to be the bearer of bad news! I'm probably not going to take any lump sums when my pensions mature, but as you say, it depends on life expectancy too....

MMcD

See posts 162, 165 and 170-174:

http://britishexpats.com/forum/usa-5...737360/page11/ (scroll down to #162 etc....)

If you're feeling adventurous , might be worth a shot. It certainly provides a novel approach to the issue.

Disenchanted

As pointed out in the posts you were referred to by MMcD, it's generally considered that the 25% lump sum is taxable in the USA due to the "lump sum" label, however if you wish to challenge the IRS on the basis it's not "a lump sum" but a "partial distribution" that is tax free in the UK and so should be tax free in the USA please let us all know the outcome.



If you take the whole thing then it will be considered a "lump sum" in the true IRS meaning and they will require you to pay taxes on the whole amount based on the current exchange rate.

Now, maybe a better strategy would be to take periodic payments, which under the new UK rules should be 25% tax free, and under the treaty they shouldn't be disallowed by the savings clause and so you should only have to pay US tax on 75% of the periodic payment.
As this is new it has not been tested so if you go this route please be sure to keep us informed.

LotusEater33

If you transfer with QROPS via Malta, then you get better tax breaks.

I'm just about to do this, signed all the papers and all.

iceflow

mmmm...well thanks for the responses. Amazing that the IRS cannot plainly state what is and what is not allowed. Probably it's buried in some form(s) somewhere, in a suitably ambiguous double talk. One thing I also need to factor in is the widows pension which would also be reduced by any lump sum up front payment. All sharp instruments have been hidden. I don't fancy Malta and the QROPS, I'll stick with Blighty and the HMRC. Thanks folks, I'll probably slide into the standard payments unless I can find a clear IRS document that says the 'lump sum' is tax free in US.

TimFountain

Don't tell me, it was a company in NY starting in De and ending in vere? Did you ask about their management fees? I hope you did.... I did the analysis and it was total waste of time.

Welshgator

Thanks, that's helpful to start with. The plan is proposing to wind up by Aug 2016 and we're going to be supplied with updates along the way. The company is even willing to pay fees for an independent adviser. I'll post if I receive any helpful info.

Disenchanted

Yes, the QROPS sounds all well and good but the transfer from UK to MALTA has not been "IRS" condoned yet and there remains the question that although tax treaties exist between UK/USA and MALTA/USA the IRS may view that event as taxable in it's entirety and you may end up with a considerable tax bill from Uncle Sam. I haven't read anybody commenting about using the UK/MALTA tax treaty as an argument against why the IRS shouldn't consider a pension transfer from UK to MALTA as a non-taxable event.

That not withstanding, I looked at QROPS option back in 2013 and found the set-up fees plus ongoing commission and maintenance fees to be very high, in fact I was of the belief the annual fees would by far outstrip any increase in the fund so I left my defined benefit pension where it was.