QROPS USA: Difficult, but not impossible

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Written By Saeed Maleki

Finding Qualifying Recognised Overseas Pension Schemes (QROPS) which are compliant with the USA’s strict financial regulations is a complicated process; as they don’t simply ‘plug’ into the offshore pension system like thousands of others. Yet complicated does definitely not mean impossible, and QROPS for USA citizens are now a reality for anyone with a UK pension who is  moving – or has moved – to America. The problem was the rules of the US Internal Revenue Service (IRS). These rules stipulated that UK pension transfers to a 401k pension were non-compliant – due to the differences between tax structure and benefits. These difference previously resulted in tax charges on any transferred fund – effectively putting a halt on any pension transfers from the UK to America. However, by looking for a regulated intermediary, there is a simple solution.

QROPS US and double taxation agreements

The key to cracking a USA QROPS is a double tax treaty (DTT) – but not the one connecting the USA to the UK. Instead, advisors are looking towards the DTT between the USA and Malta. Malta has many of the same regulatory advantages as the UK – both are English speaking jurisdictions and both have strong pension regulators. As a part of the European Union, the island also has a long history of economic and financial security. The difference between Malta and the UK, is the former has special terms written into its DTT with America, which means its registered pensions are recognised by the IRS.

A USA QROPS in Malta can give the following benefits:

  • Ability to use your foreign tax credits to offset the transfer’s taxable income.
  • Dramatically increased range of investment options; with all growth protected from US Income Tax.
  • Lump sum of 30% of your total fund value.
  • No tax on fund growth or benefits paid in Malta (as paid in the USA).
  • Lump sum death benefits to beneficiaries.

This opens up a wide range of benefits for three main QROPS client groups; US citizens who have pension funds in the UK, British nationals holding UK pensions who are moving to the US, and international workers who have worked in the UK and acquired a pension and are now moving to America. If you are a British expat living in the USA, your QROPS eligibility will also help prove your tax residence – as these schemes aren’t accessible by UK residents.

Finding the right advisor

QROP.org states “It is important that an independent financial advisor (IFA) does not follow the ‘one-size-fits-all’ model of thought.” “An independent, US-regulated firm with international experience will have the understanding to choose the right option for you, no matter the size of your fund, your nationality, or your final destination.” The need for a firm to be US-regulated is of especial importance, as your QROPS adviser needs to be able to confirm the correct option for your needs, highlight and combat all the above considerations, and outline the annual reporting requirements. QROPS Group is made up of the world’s largest independent financial advisory specializing in QROPS advice, and by contacting QROPS Group you can benefit from your UK pension fund in a tax-efficient, regulated, and most importantly safe manner.