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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.

QROPS & QNUPS – What Is The Difference?

QROPS (Qualifying Recognised Overseas Pension Scheme) and QNUPS (Qualifying Non-UK Pension Schemes) are both tax efficient retirement planning schemes for former UK residents. You do not have to hold a QROPS to take out a QNUPS or vice versa. You can hold both at the same time. Both schemes require that 70% of the assets in the scheme are held to provide income in retirement.

A QROPS allows you to transfer existing UK based pension schemes into a single pension plan and obtain potentially higher income that you would with a UK based pension scheme(s) and even pay less tax at the same time. A QNUPS allows you to invest (or transfer other investments and savings) into a non-UK Pension Scheme whether you are working or not and you can decide whether you receive an income. There is no age restriction on when you make an investment into a QNUPS.

The main difference between a QROPS and a QNUPs relates to the contributions. Income Tax releif will have been given on the income used for the contributions to the UK pension scheme(s). Contributions to a QNUPS are made from taxed income.

Both schemes allow you to receive a tax free cash lump sum of 25% (sometimes 30%) of the fund. You may have to pay income tax on the income you receive but the amount you pay is based on the rules of the country in which the QROPS or QNUPS is set up and where you are resident.

The type of investments allowed in a QROPS is set by the rules of the country in which it is set up and is usually restricted to a range of investment funds offered by the company. With a QNUPS you can invest in a much wider range of investments including fine wines, residential property or antiques.

The rules laid down by HMRC about the approval and regulation of a QROPS are much more complex than those for a QNUPS. Further a QROPS can cease to qualify as one and if this happens you could be liable to UK tax on your fund.  Therefore it is important that you get advice from a suitably qualified adviser. We can arrange for an adviser to contact you when you give us your details.

The main differences can be summed up:-

QROPS QNUPS
Can I transfer a UK based Pension Scheme? Yes No
Is there a maximum age for starting a plan? Yes No
Is there a limit to the amount that can be invested? Yes* No
Can I make contributions? Some schemes Yes (at any age)
Can I transfer other investments (i.e. shares) into it? No Yes
Can I take a tax free cash lump sum? Yes Yes
Can I draw a regular income? Yes Yes
Is there any Inheritance Tax liability on death?** Depends No
Can I return to the UK and keep the plan? Yes Yes
Are there any reporting requirements to HMRC? Yes No, unless it holds QROPS assets.

*  There is a limit of £1.5m that can be transferred out of UK pension schemes without any tax liability. Amounts over the limit are subject to a deduction for UK tax before the transfer.

**Assuming you are classed as UK domiciled for Inheritance Tax purposes which is different to being non resident for income tax.

As there are a number of differences between a QROPS and a QNUPS you should take independent financial advice from an expert in the field. We can arrange for an adviser to contact you when you give us your details.

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

For more information on QROPS visit the HMRC website here.