There is a wealth of information on the internet concerning UK pension transfers to a QROPS USA, which may be confusing to Brits living in the U.S. If you have recently moved to the USA and are working over there, you have to pay US tax on your worldwide income if you are a US resident. If you are there for less than 183 days, you need to pay tax on US derived income. We can help transfer your UK pension to USD funds which you can access in the States. Please scroll further down for QROPS USA information.
Here is the latest QROPS news update for a QROPS USA.
Firstly, some tax tips for British expats emigrating to the USA.
Tax Tips for British Expatriates in the USA
- Remember to file your tax returns, otherwise you can get with a 25% penalty just for filing late.
- Fill in a P85 form to inform HMRC that you have left the UK. This supports your claim of being non-resident in the UK and avoids you having to pay UK income tax. You may also be entitled to a tax rebate.
- Fill in form NRL1 if you are letting a property. This allows your letting agent to pay your rent income gross.
- File using the correct filing method. You can employ a US accountant to do this for you for about $300.
- In the U.S., YOU are expected to figure out what your withholdings should be and then file a “W-4” form with your employer to tell them what to withhold. If you have too little tax withheld during the year, you’ll have an unexpected tax bill at the end of the year, and you might be liable for underpayment penalties. If you have too much withheld, you give Uncle Sam an interest free loan until you file your US tax return and claim a refund!
- Fight US Audits. the IRS knows that British Expats need to be up to date on their taxes in order to qualify for potential Green Cards and US Citizenship.The IRS also knows that British Expats will often just pay the amount that the IRS claims they owe instead of fighting it because they aren’t familiar with the tax system, and they don’t want to jeopardize any future immigration benefits.
- Resident Aliens: If you have a green card or you have been physically present in the United States on at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. Otherwise you are considered a non-resident alien. To satisfy the 183 days requirement, count all of the days you were present in the current year, and one-third of the days you were present in the first year before the current year, and one-sixth of the days you were present in the second year before the current year.
- Non-resident aliens fill in Form 1040NR (PDF) or Form 1040NR-EZ (PDF). You pay tax on any income from work, business or trade in the U.S.
- If you are a resident alien, you must follow the same tax laws as U.S. citizens. You are taxed on income from all sources, both within and outside the United States. US Single or Joint Tax Returns for British Expats with No Dependents. Form 1040ez. US Individual Tax Return for UK Expats. Form 1040a. US Individual Tax Return for UK Expats. Form 1040
- Move your pension to a QROPS in the USA for tax efficiency.
QROPS USA. QROPS Pension Transfers for British Expatriates in the USA
QROPS USA transfers were made available in principle to US nationals who had worked in the UK and UK expat moving to the US since QROPS inception in 2006. You can still find a list of companies on the Inland Revenue’s web site allowing QROPS USA pension transfers to US 401(k) pension schemes.
However, the Inland Revenue Service (IRS) essentially blocked the move, refusing to recognize QROPS transfers into a QROPS USA 401(k) pension by British expats living there on the grounds the QROPS trust structure is not legal.
Furthermore, US nationals overseas cannot transfer from a 401(k) to a QROPS.
QROPS 401(k) and IRA transfer. QROPS USA
Attempts to transfer QROPS to the US were either indefinitely stalled, blocked or attracted IRS tax penalties on any funds transferred.
Unfortunately, the situation will likely worsen with the advent of the The HIRE act which comes into force in the USA on 1st January, 2013. Part of the regulation changes include The Foreign Account Tax Compliance Act, which will essentially bar all US residents and US nationals from transferring their pensions into a QROPS.
Although this complicates any QROPS transfer into a 401(k) pension, some providers have restructured the master trust that manages a QROPS in to a USA-friendly legal entity.
British expats cannot transfer their pensions to a 401k. Even though HMRC allow it, the IRS will not permit the transfer.
The solution is to transfer your UK pension to a QROPS in Malta which has a Double Taxation Agreement in place with the USA meaning your QROPS would grow tax free and avoid the 55% tax upon death in the UK.
The framework is now in place for a QROPS USA pension transfer via Malta and for those with larger final salary pensions, we offer a free pension transfer analysis. For those that need insurance, we can also get a signed letter from a lawyer explaining the Double Taxation Agreement between the USA and Malta. Be careful, the trust needs to be a US approved Maltese trust. A normal QROPS in Malta is not sufficient. Only a handful of companies offer this trust.
For British expats working in the USA, you could benefit from a QROPS in Malta to avoid UK taxation. This helps you avoid the 55% tax upon death although you would pay US income taxes on the income if you were to draw it in the USA. Malta has a Double Taxation Agreement with the USA which allows your pension to grow tax free in Malta whilst avoiding all UK taxation including the 55% tax upon death in the UK and UK income taxes of up to 50%.
You would pay US income taxes when remitting your pension to the USA in retirement. However, we can also minimise these taxes by taking your pension as a tax-free lump sum rather than income. Click here for more on tax filing for a QROPS USA. If you retire outside the USA, you would pay income tax in your country of residence at retirement.
What Can I Invest in with My QROPS USA?
Your pension trustees would be based in Malta, however your pension monies would be parked in the Isle of Man and you can invest in most shares, funds, ETF’s, bonds and treasuries on most of the world’s major exchanges like the FTSE100 and S&P500 or you could keep your pension in cash in an offshore account. You choose the currency and you can choose the investments or let our skilled advisers choose for you depending on your risk type.
For British expats who live in the USA and want to transfer to a QROPS USA, we have a solution. Incorrect transfers could end up with the IRS crawling all over you demanding a 30% withholding tax and a penalty of between 2% and 10% for late filing and up to US$10,000 fine for tax evasion. We have a safe solution which allows you to transfer your pension to USD through a pension transfer whilst complying with the Inland Revenue or IRS. Contact QROPS Specialists now about our QROPS USA solution.
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QROPS USA article is brought to you by QROPS Specialists.