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    Specialist Help For USA Residents

    It is estimate that there are over 1.5 million British expats now living in the USA. A very large proportion of this number will never return to the UK. Choosing to live out their twilight years in sunnier climes.



    The USA is certainly a favourite destination for many UK ex-pats, however transferring a pension into QROPS is problematic for stateside residents as well as ex-pats.

    For the first time some QROPS is now available that tackles the necessary legal and administrative issues that have prevented US residents and nationals from picking up the tax and investment benefits or transferring to a QROPS.

    QROPS advisers do confirm that the HM Revenue and Customs listings of QROPS have included several US 401(k) pension schemes more or less from day one of April 2006. In principle QROPS transfers were available to US nationals living abroad along with UK ex-pats moving to the United States.

    It does remain that the HMRC’s counterpart in the USA namely the Inland Revenue Service (IRS) has so far refused to recognise QROPS transfers into a QROPS USA 401(k) pension by UK ex-pats living there. The reason for this they claim is that the QROPS structure is not legal.

    A similar no-go status was imposed on US nationals overseas who transferred from a 401(k) to a QROPS.

    QROPS 401(k) And IRA Transfers

    Both triggered IRS tax penalties on any funds that were transferred.

    This unfortunately is likely to tighten up further from January 2013 when the Foreign Account Tax Compliant Act comes into force. The Act will virtually bar all US residents and US nationals living outside the country from transferring their pensions into a QROPS.

    Although this complicates any QROPS transfers in or out of a 401(k) pension some providers have managed to re-structure the master trust that manages a QROPS into a USA-friendly legal entity.

    This is a legal alternative that opens QROPS USA investments as a two-way street between transferring from a UK pension to a US QROPS and likewise from a US 401(k) to an offshore QROPS.

    The framework is now in place, however QROPS USA is still tied up in red tape and successful transfers do require patience, specialist skills and expertise.

    The possibility of moving QROPS pension transfers for UK ex-pats living in the US does open a new world of investment opportunities that were once unavailable.

HMRC QROPS – Scheme Recognition Rules

The QROPS rules under which allow a scheme to be recognised by the HMRC are detailed and can look daunting. They can be summarised as:-

  • The QROPS must be regulated as pension scheme and be recognised as a pension scheme for tax purposes in the jurisdiction it located
  • The QROPS must be open to residents of that jurisdiction
  • You must be resident (or plan to move in the following 12 months) outside the UK to take out a QROPS
  • At least 70% of the QROPS fund must be used to provide pension income
  • Benefits cannot be withdrawn (in most cases) before the age of 55 has been achieved
  • The QROPS undertakes to follow the reporting rules.

The first rule above is relatively straight forward. This allows a QROPS to be set up in a jurisdiction that has low rates of tax (e.g. Guernsey and Isle of Man) and still be recognised by HMRC.

There must be access, by local residents, to the scheme and the scheme rules must not make it difficult for one to become a member.

At the time of taking out the QROPS, evidence of your being resident outside the UK should be obtained by the scheme. If you have not moved, but are planning to, again evidence of the plans to move should be obtained by the QROPS.

The HMRC QROPS rules restrict the amount that can be taken as a lump sum. Although some QROPS are established in jurisdictions that allow higher amounts (up to 100% of the fund) to be taken as a lump sum, the scheme rules must restrict the amount that can be taken to a maximum of 30%. However if you take more than 25% of the fund as a lump sum there could be a tax charge levied by HMRC of 55% of the amount paid.

The minimum retirement age is set to coincide with UK legislation, and is a deterrent to those who wish to take benefits early. However in certain circumstances (e.g. ill health) it may be possible to take benefits earlier than the age of 55.

The reporting requirements are there to ensure that the rules are followed. There is a reporting period (see below) that requires the QROPS to notify HMRC of any payments made from it. If any payment is made that breaches the equivalent UK requirements, you as the QROPS holder will have to pay a tax charge of 55% of the payment made to you. This rule is there to ensure that the QROPS is used as a vehicle to provide retirement income.

The reporting periods change on 6 April 2012 and the details are:-

For a QROPS set up by 5 April 2012-

The reporting period is the first five full UK tax years you are resident outside the UK, and you are not resident in the UK at the time the payment is made. For a person who became a non resident in July 2007, the reporting period ends 5 April 2013.

For a QROPS set up on or after 6 April 2012-

The reporting period is 10 years from the date the QROPS is set up.

In summary, whilst the detailed QROPS rules of the HMRC are complicated, provided the QROPS is set up correctly, it is easy to comply with them and benefit from the flexibility and potential for higher retirement income and reduced taxation.

An experienced financial adviser will be able to explain these rules in greater detail and help you make the right decisions. We can arrange for an adviser to contact you when you give us your details.

For more information on QROPS visit the HMRC website here.

The information given in this article is strictly for information purposes only and is not to be construed as financial advice.