Brits resident in the USA – QROPS pensions

by Alex Paul Digital Marketer

You may or may not have heard of a QROPS but if you have a UK personal pension, as many ex-pat Brits do, this article may be of some interest to you.

There is much uncertainty surrounding this subject for individuals that are now considered as US tax resident/citizens. Although this short article is by no means comprehensive, it will aim to make clear some of the main points on the subject.

QROPS Basics

The term QROPS is an acronym for ‘Qualifying Recognised Overseas Pension Scheme’, a title that the HMRC bestowed upon certain overseas pension schemes that meet specific requirements (Although, HMRC have now changed the term to ROPS). These schemes must conform to being as closely aligned to how UK pensions are organised and operated in order to maintain this status.

If any overseas pension providers do not keep their plans aligned to the legislation, they risk losing their QROPS status with the HMRC. If they do lose this status, the overseas pensions will be unable to accept transfers into them without triggering an unauthorised tax penalty charge which could be up to 55% on the value of your pension. Historically, Guernsey used to be the most prominent offshore jurisdiction that led the market with QROPS pensions until the majority of them were delisted back in 2012; Malta has now become the main provider.

QROPS are basically an overseas personal pension plan that is similar to a UK personal pension. Meaning, the pension will grow tax deferred until you begin taking an income which will then be taxed by the IRS.

Another major QROPS advantage was the ability to leave your remaining pension pot to your loved ones free from tax whereas the UK used to apply a 55% death tax. From April 2015 this death tax was abolished by George Osbourne. Now you can leave a UK pension pot as a lump sum or as an income completely tax free up to 75. Individuals that die after 75 can pass the pension on to a beneficiary who can draw an income or a lump sum (new legislation for 2016-17) at their marginal tax rate. As you can imagine, this has had a major impact on the previous advantages QROPS used to enjoy.

Of course, there are many other, finer details associated with this complex issue but we are constrained by the limits of the article. This being said, I hope the article has addressed the key issues and has provided some insights into any questions posed. These views represent our interpretation of the rules.

At Alexander Beard, due to such uncertainty, we believe that the tried and tested route of a UK SIPP is by far the safest option and so we made a corporate decision that we will we will not expose our clients’ money to these potential risks.

If you would like to discuss this matter in more detail then please do get in touch with us. Alexander Beard is an international financial advisory service who are registered and regulated both in the United States and the United Kingdom.