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How HMRC QROPS USA works and what you need to know about it

When choosing your pension plans, you need to consider how this will help you achieve a comfortable retirement. Since most of us do not come from finance or economic backgrounds, there is a steep learning curve to understanding all matters related to pension planning.

If you are a UK pension holder currently residing in the US, you will need to estimate the pension benefits of retiring in the latter country. You may decide to retire there after considering the perks of living in the US, including the ability to transfer your private pensions (non-state pensions) to an overseas scheme in the USA.

Most UK residents hold a defined contribution (DC) or a defined benefit (DB) pension scheme. Each scheme has its own pros, cons, and rules. Once you leave the UK for work or perhaps to retire, you should consider transferring your funds to eligible schemes.

We at Cameron James face so many questions about QROPS transfer to the US. This scheme, as advertised, will give the holder flexibility in managing their retirement fund since they can take it as a lump sum starting at age 55. In addition, a QROPS can receive transfers from the UK registered pension schemes tax free, up to the lifetime allowance (LTA) limit.

As you’re reading this article, we bet you have the same questions as our clients:
Can I transfer my retirement funds to a QROPS?
What benefits can I aim for with this scheme?
What QROPS advice should I consider?
How is it different with an international SIPP?
Is it viable to transfer out my UK pension scheme into a QROPS?

What does QROPS stand for?

QROPS stands for a Qualifying Recognised Overseas Pension Scheme. It was set up by the UK government on 6th April 2006, partly as a response to the Schengen Agreement – a treaty signed on 14th June 1985 which allows freedom of labour and capital movement in Europe.

Many people have opted to spend the rest of their life outside their country of origin. The United States of America is a home to many British people and UK nationals. As per this report, the US came second as the most popular destination to move to. In 2019, there were 716,260 British expats living in North America.

Several factors have played a role in making the US the most popular destination to emigrate to. Gallup's studies, which interviewed 501,366 adults in 154 countries between 2010 and 2012, estimated that 3 million UK citizens wanted to relocate to the US. Once they settle in the US, UK citizens will need to consider their retirement plan. One of the initial questions they need to clarify is how to transfer their UK pension to the USA.

Unlike offshore countries such as Cyprus or Panama, many countries have income tax regulations for foreign nationals. The US Internal Revenue Service (IRS) categorises your pension as an income -- which is fully or partly taxable. Therefore, as a US connected person, you are obliged to report to the IRS.

You need to consider form 8938, FINCEN 114, and form 3520. Failure to report to the authorities can result in penalties, and the penalties can be up to US$10,000 or 5% of the pension value. Therefore, it is advisable to get advice from a professional tax adviser in the US.


The QROPS pension scheme is regulated and monitored by Her Majesty’s Revenue and Customs (HMRC), hence the term QROPS HMRC. Its principal goal is to simplify pension planning for British pensions holders living overseas. You may find yourself needing money to acquire property or start a new business in a new country.

QROPS offers greater flexibility than UK workplace pensions as it allows you to access your pension savings from the age of 55. Other UK pensions only permit you to access your pension savings when you reach either age 60 or 65.

Any foreign pension schemes must comply with QROPS rules. For a start, it must bea “recognised overseas pension scheme” (ROPS) by HMRC, which you can check here. An updated list of ROPS notifications is published on the 1st and 15th day of every month.

However, HMRC cannot guarantee whether any overseas pension schemes on the list will be tax-free. We highly recommend you consult with registered and professional financial advisers like Cameron James to examine this particular matter closely. You should only consider the QROPS list found on HMRC’s website; other sources may be inaccurate.

QROPS Timeline

Some notable moments regarding QROPS, according to the QROPS Review, are as follows. Following its introduction on 6th April 2006, the Gibraltar government suspended QROPS transfers on 8th September 2008. It was the beginning of three years of negotiations over accepting UK pension pot transfers.

As of 20th January 2010, a UK pension provider requested a Freedom of Information to show that QROPS were a tax dodge. The effort failed to come to fruition and encouraged more transfers as it showed pension holders how QROPS investments could ease the tax burden from their pension.

Around October 2010, the Isle of Man launched its first QROPS scheme called Trinity. It is registered as a QROPS with HMRC, and the Trinity rules permit the payment of a much higher retirement lump sum than any other QROPS, which can be as high as 75% or 80% of the fund value. In January 2011, HMRC reviewed legislation to prevent abuse of this and increased the reporting period from 5 years’ non-residency member to 10 years from the date of transfer to the scheme.

In April 2011, Guernsey QROPS providers upped their game with voluntary codes of conduct to give retirement savers confidence in their schemes. It was published in April 2011, the first to print anywhere in the world. In December 2011, the government released new QROPS pension changes following a £3.5 million QROPS fraud in September. The main difference was a new rule that stated all QROPS accepting non-resident members must ensure that 70% of the transferred fund provides an income for life.

When you’re considering a QROPS transfer, you should consult with your financial adviser and refer to HMRC for its eligibility. The UK government has delisted many QROPS pension transfer schemes in various countries. You need to check on updates in USA QROPs news as well. The following are QROPS schemes that the government has delisted throughout the years:

  • 5th May 2008: Singapore
  • 8th September 2009: Gibraltar
  • 15th April 2012: Cyprus
  • 10th May 2012: Guernsey’s new rewritten 157e
  • June 2014: All Swiss
  • May 2015: HMRC closed 40% of Australian schemes as they allow expats to claim their pension if they have ill health
  • 6th April 2015: HMRC stops all transfers from NHS pension transfers
  • June 2015: Many Irish stopped accepting transfers due to ill health clause
  • 15th August 2016: Australia 500,000 AUD pension cap, and you must be over 55 to transfer
  • December 2016: French and Italian are removed
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QROPS for US Residents, HMRC Approved QROPS

Despite its benefits, we should inform you that QROPS transfer is not a viable option for UK pension holders living in the US. However, you can transfer your pension fund to QROPS if you live in one of 30 countries of the European Economic Area (EEA) or to a QROPS recognised country you reside in outside of EEA regions.

As the US government does not recognise a QROPS transfer, it correspondingly does not meet HMRC QROPS requirements. As a result, a transfer to an unrecognised overseas pension scheme is subject to a 55% tax charge. In addition, you will likely be charged at least 40% of the transfer amount following the UK’s overseas transfer charge (OTC) policy.

That being said, you must ignore any financial adviser offering you approved QROPS schemes in the US. We suggest you opt for an International SIPP instead. It is a great pleasure for us to help you get through the process, while keeping your pension fund and retirement intact.

Another fundamental reason to choose a SIPP is the double taxation agreement (DTA) between both countries that allows US residents who have a UK pension to take a 25% tax-free lump sum. Although the remaining 75% will be considered as an income and subject to tax in both countries, the double-tax treaty agreement assures that you won’t be taxed twice.

While living in the US you may also work for US-based companies, which consequently follow US regulations related to workforce and employment. In the country, one of the most popular pension schemes is a 401(k) plan. It is similar to the UK’s defined contribution scheme (DC). Yet, in contrast, it is more popular nowadays than the defined benefit (DB) plan, according to CNBC.

Inevitably, you will be attracted to investing your retirement fund into a 401(k) plan in a single pot, combined with your UK pension scheme. However, transferring a UK pension to 401k is off the table for US residents. More information about HMRC QROPS FAQ and QROPS Example (study cases) can be found here.

QROPS Advantages and Disadvantages

Once you move out your pensions into a QROPS pot, the first thing you will get, in concept, is flexibility. You are free to use your QROPS investments when you reach the age of 55. QROPS benefits are as follows:

1. No Lifetime Allowance (LTA) Charge

In the UK, every resident has a lifetime allowance of £1,073,100 (HMRC, 2021), which the UK Government has fixed until 2026. Any pension savings exceeding the lifetime allowance will endure taxes at 25% or 55% depending on how you access the capital. Avoiding this hefty tax bill is arguably the most significant advantage of a QROPS.

For investors resident in the EEA with pension savings close to or breaching £1,073,100, a QROPS transfer is likely to save you a considerable amount of tax in the future. Once inside the QROPS, your pension pot will never be tested against a LTA charge again. However, on transferring your UK pensions to a QROP, you trigger a Benefit Crystallisation Event (BCE) 8, where you will be tested against the LTA amount and pay 25% on the excess over £1,073,100.

2. Early Access

QROPS are in line with the UK pension freedom rules introduced on 6th April 2015, permitting people to access their pension savings from the age of 55. Why would the UK government allow this? In reality, George Osbourne, the former Chancellor, introduced pension freedom rules to gather more stealth tax.

That point aside, many UK workplace pensions do not permit people to access their pension savings until age 60 or 65. Therefore, it offers greater flexibility than UK workplace pensions.

3. Maximise Spouse Pension

In the event of your death, a UK pension such as a Final Salary or Defined Benefit scheme will only pay your spouse a pension of up to 50% of your annual pension. If your spouse passes away, this 50% payment stops. The remainder of your pension pot goes back into the company pension coffers.

The ultimate QROPS death benefits allow you to nominate many beneficiaries including spouses, children, family, or friends. In the event of your death, 100% of your pension value passes onto your named beneficiaries. If they were to pass away one year later, 100% of the amount would move onto their heirs. So, your pension pot lives on within your family.

4. Beyond UK Rules

The UK pension legislation does not govern QROPS. So, a transfer protects investors against any future changes in UK pension legislation. However, QROP holders in the EEA must note that they would fall back into UK legislation and taxation if they move to another unapproved QROP scheme.

Additionally, if they move beyond the EEA within five years of the transfer, they will be subject to an Overseas Transfer Charge (OTC) from 2017.

5. Investment Choice

QROPS provides investors with greater freedom over how they wish to invest their portfolio compared to UK pensions. However, greater choice does not automatically mean better performance. Nevertheless, for some investors, this can help to reduce overexposure to UK assets.

6. Multi-Currency

Your UK pension provider will only transfer a GBP value into your QROPS. Inside the scheme, though, you have the freedom to move your pension into one or more currencies. Some expats prefer to match their pension to the currency of their retirement country. It helps avoid currency fluctuations and ensure the EUR or USD amount they will receive each year from their pot.

7. Tax Benefits of QROPS

Capital gains tax does not apply to the growth of your QROPS. So, like your UK company pension, final salary pension, or defined contribution pension, you will not face taxes on any growth. In some instances, QROPS permits a 30% tax-free lump sum instead of a 25% maximum in the UK, For example, on a pot of £1m this creates an additional tax-free income of £50,000.

8. Local Tax Rates

If your country of residence holds a Double Taxation Agreement (DTA) with your QROP jurisdiction (typically Malta), your provider can pay you a gross income from your QROP. You are then free to pay your local taxes in your country of tax residency. Extensive DTA’s is why Malta is one of the longest standing and well regarded QROP jurisdictions. Along with its EEA status, no OTC 25% tax is applied to any transfer, as long as the client is also resident in the EEA.

9. Avoid Annuities

From age 55, you can decide when and how much you wish to withdraw from your QROPS. There are no obligations to purchase a QROPS annuity in the US. Some investors prefer to take a higher income during their early retirement years and enjoy their more active years.

Others prefer to take their 25% tax-free PCLS and take the remainder gradually. You are free to decide on what withdrawals you want at any point.

10. UK Residents

QROPS are one of the most underutilised financial planning tools available in the UK. Mainly because UK Advisers typically have little or no knowledge of QROPS.

However, as the UK is still an EEA member country at the time of writing, there is a small pocket of well-informed UK residents utilising QROPS. It has been utilised in the City of London, where banking pension pots often breach the £1.055m LTA mark. This topic is an entire article in itself.

11. Defined benefit pension schemes

Most people refer to Final Salary or Defined Benefit (DB) schemes as being gold plated. They offer great value. That is true in many instances.

A client could be worse off by transferring their Defined benefit pension schemes and QROPS. However, a growing number of Final Salary schemes are reaching a tipping point.

As recently highlighted by some high profile collapses, including Sir Phillip Green and BHS (Financial Times, 2019), it is prudent for clients to understand the strength of their DB pensions. This is important as it may affect their ability to complete pension payments in years to come.

Below are the disadvantages of a QROPS:

1. 25% Tax Charge Outside EEA

QROPS were introduced to create an even playing field for non-UK residents with UK pensions. However, HMRC believed some were primarily using QROPS to avoid UK tax and access their pensions early.

As a result, on the 9th of March 2017, a 25% Overseas Transfer Charge (OTC) was declared on any transfers where the client is outside of the EEA. However, you can avoid the overseas transfer charge if you are a resident in the receiving country of the QROPS. You must remain a resident of this country for at least five years or you will be subject to penalties.

2. Exhausting Your QROPS

QROPS provide clients with unlimited access to their pension from age 55 and greater control over their retirement. However, there is an obvious danger here that clients could exhaust their pension savings too early.

Technically, there is nothing to stop a client from withdrawing all their QROP on their 55th birthday. While we would typically advise against this, there would be nothing the QROP provider or we could do to stop them.

3. Potential QROPS Deregistration

Just because a scheme currently qualifies as a QROP provides no guarantee that it will continue to do so moving forward. QROP providers must re-notify HMRC every 5 years that they are continuing to be a QROP.

Any reputable QROP provider will not forget to complete its most important piece of admin every 5 years, but it highlights a point. That is why we only use QROP providers with a good reputation and relationship with the HMRC.

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International SIPP vs QROPS

What's the Difference between SIPP and QROPS?

QROPS International SIPP
UK pensions can be transferred to QROPS in EEA countries and 28 countries outside of the UK. See full list here An alternative for US residents with UK pensions. Pension assets remain in the UK within an iSIPP wrapper.
No obligation to purchase an annuity. No obligation to purchase an annuity, but still an option.
If you return to the UK, it will be treated as a SIPP. Nothing changes.
Up to 30% pension commencement lump sum free from UK tax from the age of 55 (and in some cases as early as 50). 25% lump sum free from UK tax after you reach 55.
QROPS based in Australia, New Zealand, Malta, Gibraltar, and India attract no tax on growth or death, as long as the client remains outside the UK. SIPPs have no tax on growth, but there are death taxes after the age of 75.
Annual custodial fee, admin fee, dealing costs. High annual costs are typically around £750-£1000 per annum. Annual custodial fee, admin fee, dealing costs. Lower costs of between £0-£300 per annum.
Can avoid any further Lifetime Allowance (LTA) Charge once inside a QROPS. Cannot prevent Lifetime Allowance (LTA) charge, it is triggered whenever benefits are crystallised.

US residents should not consider QROPS vs SIPPS. International SIPP is the only reasonable option for UK pension holders who live in the country. Cameron James has a dedicated International SIPP service that you can trust. We are happy to discuss your UK pension transfer to the USA, overseas pension, or your retirement plan in general.

If you’re currently based in Europe or other SIPPS-eligible countries, Cameron James is one of the QROPS advisors to assist you in planning your retirement.

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Tax Benefits of QROPS

Are QROPS taxable to US residents?

As we mentioned earlier, US citizens cannot transfer their UK pensions to a QROPS. The primary reason for this is because the US government does not recognise it as a pension scheme. Since a QROPS transfer should be in a recognised pension scheme, UK tax will cut your funds immensely. The QROPS scheme is viable only to those living in European Economic Area (EEA) countries or in one of the other recognised QROPS countries outside the EEA.

A QROPS might be an option if you plan to return to the UK and spend your retirement there. The reason for this is, at the moment, QROPS holders are still free from the lifetime allowance (LTA). However, everyone whose pension saving has exceeded £1,073,100 would be subject to a tax charge of 25% on any income and 55% on any lump sum taken out.

So, during your years in the US, you can access your retirement fund using the international SIPP and transfer it to QROPS once you decide to go back to the UK. Please do not hesitate to contact our team to discuss the matter further.

How Much Can You Withdraw from a QROPS?

You can withdraw a 30% tax-free lump sum instead of a 25% tax-free lump sum in the UK. This initial withdrawal is also known as the Pension Commencement Lump Sum (PCLS). The remaining 70% of your fund will be considered as income and subject to tax.

Best QROPS providers will not only advise you but also comprehensively assist you throughout the process. Cameron James and its experienced pension experts rank as one of the UK pension transfer specialists that can help you out on this matter.

Who is a US Connected Person?

Somebody may not realise their status as a US connected person. Therefore, you have to examine your status carefully, as the US government requires all US citizens working and residing abroad to file and report on their worldwide income. If that is the case, you must file a complaint-US tax return, including investment income.

US connected person status applies to those born in the United States, hold a US passport (green card), have lived in the US, have worked in the US, or a person whose parent is American. Although your green card has expired, you are still liable to pay US tax. It only expires after filing a formal administrative or judicial determination of abandonment of US residence with the US Citizenship and Immigration Services.

It is estimated that around 10 million US citizens are living abroad. Once you are fully sure about your US citizenship, you may have to consider your retirement plan. If you have been working or living in Europe and planning to return to the US, you should consider how to transfer your pension because you cannot transfer your UK pension using QROPS to the USA.

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QROPS Guernsey & Malta QROPS, are they viable options for US residents?

There is a high chance you will be given advice to choose a Malta or Guernsey QROPS scheme. Malta is an established financial jurisdiction regulated under European Union rules and the local Malta Financial Services Authority.

Meanwhile, in Guernsey, the country once set a customised personal pension regime known as Retirement Annuity Trusts (RATS). As Guernsey’ of Income Tax, the Guernsey RATS could meet the criteria for approval as a QROPS and be registered with HMRC as a QROPS. However, HMRC delisted more than 300 QROPS schemes provided on the island.

Even though they had introduced flexi draw-down in response to the aforementioned change, there are many considerations for anyone looking to transfer their fund to a Guernsey QROPS. It applies especially to US residents who plan to move their UK retirement fund through a Guernsey QROPS.

As many Guernsey QROPS are no longer listed as ROPS, pension holders will be subject to a 55% UK tax charge. The ‘How is Guernsey QROPS transfer taxed in the USA?’ question should be out of consideration for US residents.

How do QROPS work in Malta? Providers on the island offer a range of QROPS – including life products for smaller funds with reduced administration and setup costs. However, not all schemes are equal and careful financial planning is essential. There have been recent changes to the regulation, and you need to be sure that your financial adviser is genuinely qualified to manage your fund.

Most importantly, a Malta or Guernsey QROPS will still be considered a foreign pension by the US government. As such, your retirement fund will be subject to a high amount of tax. As of now, the regulation sees an International SIPP as the only viable option for UK pension holders living in the US.

Our Founder & CEO -
Dominic James Murray

I have been in the UK Pension Transfer industry for over 11 years, and have witnessed seismic changes in the UK Pension rules over the course of that decade. Most to the benefit of the UK Chancellor or to Chequer!

My 5 years as CEO of Cameron James, have certainly been the most rewarding. My goal, has been a simple one. Provide clients with transparent financial advice on a low-cost basis, for them to make informed decisions to protect their families best interests.

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