Despite the government’s intention to widen people’s pension options, QROPS transfer to the United States is impossible. The impossibility is because the UK Government (HMRC) does not recognize any QROPS schemes in the US.
Likewise, the US government does not permit the QROPS scheme (one requirement for making an overseas pension scheme qualified). Therefore, if you were to transfer your pension assets from the UK to the US, you could face high penalties from both the UK and US tax authorities. Our CEO and Independent Financial Advisor, Dominic James Murray, explains all the possibilities of QROPS transfer to the USA in one of our YouTube video below.
Historically, it was set up in 2006 by the UK government to simplify pension transfer overseas and to give more flexibility to the UK’s pension holders. However, not every jurisdiction is eligible for such a transaction. Her Majesty’s Revenue and Customs (HMRC) strictly monitors and regulates the scheme. Therefore, anyone interested in using a QROPS should consult a trusted and reliable financial adviser.
The HMRC strictly prohibits a transfer to an unrecognised overseas pension scheme. Due to its benefits, many individuals used QROPS to avoid UK tax. They transferred out their funds to foreign countries without really resided in those jurisdictions.
Before being delisted by the HMRC, the USA held the QROPS USA status. UK expats living in the country had enjoyed the scheme before it was entirely shut off in 2019. The US is the first country to lose QROPS status after Mauritius in 2019.
The US Internal Revenue Service (IRS) will want you to report your income (as well as any pension income). It would be best to consider your state’s tax rules and regulations, which can differ widely. It is highly recommended to get advice from a US-based tax consultant.
You have to be careful of a pension adviser who offers you a service to manage your QROPS in the USA. It is not a viable option for UK pension holders living in the US. We suggest you opt for International SIPP instead.
Overseas Pension Transfer Charge
The overseas transfer charge only applies if you transfer to an overseas scheme. So, for example, if you transfer to a SIPP or International SIPP, you will not be subject to this charge.
Some individuals used pension transfers as a way of avoiding UK tax. So, to protect against any potential loss, the UK government introduced the overseas transfer charge from the 9th March 2017. Meaning, a transfer to a QROPS, that does not meet the HMRC requirements, will have to a pay 25% tax penalty of the entire pot.
A higher 55% tax charge will be applied if you make an overseas transfer to a non-QROPS scheme, as it will be classified as an unauthorised payment. This would be the same if you somehow managed to take the pension in cash before 55. From the regulators’ point of view, the high taxes will be enough to stop the transfer.
You should be able to transfer your QROPS tax-free if:
- You are residing in the country in which your QROPS is located.
- You live within the EEA, and the QROPS is in another EEA country or Gibraltar.
Note you are subject to pay the tax charge if you become a non-resident of the EEA area within five years of transferring to a QROPS based in the EEA. Additionally, suppose you transfer to your local QROPS outside the EEA and become a non-resident of your local QROPS country within five years. You must additionally pay the 25% overseas tax fee in this instance. Therefore, you should consider if you plan on changing your residency within five years before deciding to transfer to a QROPS.
Be aware that if the required paperwork for the QROPS is not filled out correctly, you will have to pay the 25% charge. You can, however, request a refund at a later date through your scheme. At Cameron James, we will fill out any paperwork for you and get you to sign off on the paperwork to ensure the transfer is approved correctly.
Any pension provider overseas needs to file their QROPS to the HMRC to be included in the list. Unfortunately, the last time we checked the HMRC’s ROPS list, there wasn’t any US-based provider on it. This is because HMRC QROPS USA does not exist.
We need to tell you that despite being listed, it doesn’t guarantee any QROPS transfer through a particular provider will be free of tax. The HMRC itself warns you to give it much thought and consult the matter with the experts.
Everyone understands that people would love to consider the better option for savings, retirement, and taxation. One of the government’s sources of income, however, is taxes. Therefore, it is a very reasonable preventive action considering the possibility of income loss.
Why You Should Consider International SIPP
Another main obstacle is the five-year rule where HMRC requires the individual to have resided outside the UK for at least five years of tax years (not calendar year). The law requires you to have been a UK non-resident for five consecutive tax years before retiring or beginning to draw from your QROPS.
If you have lived in the US for a couple of years, you should not consider consolidating your UK pension scheme through the HMRC QROPS. You should consider consolidating your UK pensions and to transfer them to an International SIPP.
We at Cameron James have helped our US clients get through this painstakingly time-consuming matter. Relocating to other countries to enjoy retirement, after years of hard work, should be worry-free. For many reasons, the US has been a favourite among places for UK citizens to retire.
Cameron James understands the obstacles and will provide you with your best option during the process. If you are still curious about QROPS USA, we can always help you to clarify any questions that you have. So book your consultation with us, and let’s plan your retirement thoroughly to guarantee your well-being in the future.
Why I Shouldn’t Leave My UK Pensions Where They Are
Suppose you decide to retire in the USA, but leave your UK pensions in the original scheme. In that case, you may have difficulty accessing them. This is because most pension providers will not pay pension income directly into an overseas bank account. Those that do might hit you with extra fees.
You can solve this by asking your provider to disburse your income in a UK bank account. Then, you can choose to withdraw your money in your country of residence or to transfer it to your foreign bank account. However, this will likely come with high transfer fees and currency transaction costs. In addition, this would unnecessarily reduce the value of your pension assets.
Moreover, you face the burden of exchange rate risk by leaving your pension assets denominated in GBP Sterling. Exchange rates can go up and down, and who knows where they will be, let’s say, in ten years time. You may find that the exchange rate of Sterling to USD falls, and concurrently the value of your pension assets in USD will fall. Hence, reducing your pension income in the USA.
It is more logical to hold your pension assets in USD to avoid currency uncertainty so that you can plan out your pension income objectives more effectively. The best way to hold these USD investments is to transfer your UK pension to an International SIPP. Within which you can have assets in multiple major currencies, including USD, removing that currency risk.
If you hold UK pensions and have moved to or are planning to move to the USA, please get in touch and one of our advisers can you walk you through your options in more details.