For those living in America who have pensions saved from their time in the UK, the complexity surrounding the tax viability of transferring into a potentially highly beneficial QROPS can be slightly off-putting.
Many will search the HMRC QROPS list and see 14 schemes listed in the USA. Schemes such as Kraft Energy Systems, Inc. 401 (k) Plan & Trust, Currie & Brown Inc 401(K) Plan & Trust or ABL/Shirley MacKay Solo 401 K Pension Plan may seem the like the answer to getting the pension away from the deficit- laden UK marketplace, however this is not the case.
Unfortunately, no USA 401k can accept UK pension transfers. Neither can any US-based financial structure at all for that matter. The IRS deem any transfer between the two countries to be a tax loophole, and have firmly put a stop to this.
There are excellent alternatives available however, a selection of QROPS based outside of the US can accept transfers of UK pensions, while remaining FATCA compliant and not creating an event deemed ‘taxable’ due to the signing of a double tax treaty with the country they are based in.
A transfer into one of the available QROPS allows the pension growth to be free of all US tax. If a pension is left in the UK, what growth there is, is subject to FATCA reporting annually, and subsequent tax on gains.
Most QROPS jurisdiction do not comply with the new reporting requirements under FATCA, and do not have a double tax agreement which covers pensions in any case. As a US resident, or a US national living abroad who has earned a UK pension they wish to transfer into a QROPS, it is imperative that the chosen jurisdiction is FATCA compliant and has the relevant DTA in place.
Failure to complete effective due diligence by Financial Advisors has cost up to 30% of the pension fund in some cases due to non-compliance and transfer into the wrong jurisdiction. This is why it is vital that only an experienced consultant with good knowledge of American finance should be trusted to complete the transfer.
Despite the relative complexity of a transfer, thousands of QROPS are already in place for those living in the States, and the number is increasing rapidly and the IRS receives the necessary annual reports with no problem at all.
One of the popular QROPS destinations for a US resident is Malta. They have the relevant tax-treaty, they comply with FATCA, and they have a solid economic background with regulation very similar to that found in the UK.