QROPS USA Pension Transfer Information for Expats

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Written By Saeed Maleki

QROPS USA Pension Transfer Information for ExpatsQROPS USA no longer throw up the thorny issues of tax on retirement savings for anyone living in the States who wants to switch a British pension fund into a Qualifying Recognised Overseas Pension Scheme.

The problem was the legal structure of a UK registered pension does not match any scheme recognised as compliant by the US Internal Revenue Service (IRS).

This mismatch has stopped many retirement savers from transferring their funds into more tax effective QROPS to avoid reporting any fund growth to the IRS.

QROPS US and double taxation agreements

The key to unlocking a USA QROPS is a double taxation agreement (DTA) – but not the obvious one between the US and Britain.

Instead, QROPS providers have looked towards a DTA between the US and Malta.

Malta has many of the same regulatory advantages as the UK.

Both are full members of the European Union and both have strong pension regulators.

The difference is Malta has special terms written into the DTA that agrees registered pensions on the island are recognised by the IRS.

This opens a world of opportunity for three main QROPS investor groups –

  • US citizens who have pension funds in the UK – these can be British expats living in the US or US nationals who have worked in the UK and returned home
  • British nationals with pension funds in the UK who want to live permanently in the US
  • International workers who have British pension funds who are moving to the US

Another advantage is the unlocking of US foreign tax credits to set off against tax charges in the US.

Unlocking foreign tax credits

Any American who has worked in Britain will have picked up foreign tax credits due to the disparity of top rate tax between the two countries.

The current UK top rate of income tax is 45%, although the rate has peaked at 50% in recent years, while the US equivalent rate is 35%

Malta QROPS benefits

Malta QROPS offer retirement savers a range of features and benefits:

  • Retirement from aged 50
  • A 30% tax-free lump sum on retirement – calculated as a percentage of tax-relieved contributions transferred into the scheme
  • No tax on fund growth or benefits paid in Malta if tax is paid in the US

Malta offers a number of different QROPS options depending on transfer fund value and investment choices.

Payments from the fund can be made in US dollars into US bank accounts to avoid currency exchange fluctuations.

3 thoughts on “QROPS USA Pension Transfer Information for Expats”

  1. Although the article is correct as far as it goes it is potentially misleading as it misses the point that a transfer from a UK pension to another jurisdiction is considered by the IRS a taxable distribution. I have a letter to this effect from the IRS and this concurs with the view of a leading International accountancy firm. So if you don`t mind suffering tax at the point of transfer to Malta-no problem for Brits. If you have a tax credit then this can be used to offset any distribution tax but this is only likely to be the case of US persons who have worked and paid UK taxes.

  2. I too have see the IRS letter. Which indeed does state that a transfer of a UK pension to a third state pension scheme would not be covered by the UK/USA DTA.

    However I have also see US legal council confirmation that the IRS will accept a QROPS transfer, without creating a tax event. As a QROPS is a UK Qualifying Pension sanctioned by and only existing with consent of HMRC.

    So a QROPS is a UK pension but held overseas.

  3. I have read the IRS letter. This letter was dated 2011. Given this the IRS would never have heard of a QROPS. Let alone know how it works.

    It states that a transfer from a UK pension scheme to a Malta pension scheme “COULD” be treated as a distribution that would be subject to taxation as income of the individual under paragraphs 1 and 2 of Article 17 of the U.K. Treaty.

    However this is based on premise that the transfer were to a pension scheme established in a third country, instead of to another pension scheme established in the United Kingdom.

    It is assuming a simple transfer from a UK pension scheme to a Malta pension scheme.

    However this is not the case. A transfer to a QROPS is not a transfer to a Malta pension scheme.

    In law it is a transfer to a pension scheme established by the UK, in UK pension legislation. It is not in the hands of pension legislation of the country the Trust is in, as we have seen with the case of Australia. The UK has delisted all QROPS schemes. Proving beyond doubt that a QROPS is a UK pension, controlled by UK pension legislation.

    QROPS only exist in UK law. Established by UK pension legislation, and subject to changes in UK pension legislation.

    The clue is in the title. “Q” is for Qualifying. A QROPS is a qualifying pension in UK law. A QROPS only exists in UK law. A QROPS is only a QROPS if HMRC says it is.

    Given this it is covered by the UK / USA DTA.

    Many tax lawyers in the USA now agree. The only people who do not are ones that look at the issue superficially. Yes it is a complicated subject. But when considered on points of law. A QROPS is established in UK pension law, and only exists in UK law.

    A QROPS is a UK pension with assets held overseas.


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