QROPS USA no longer throw up the thorny issues of tax on retirement savings for anyone living in the States who wants to switch a British pension fund into a Qualifying Recognised Overseas Pension Scheme.
The problem was the legal structure of a UK registered pension does not match any scheme recognised as compliant by the US Internal Revenue Service (IRS).
This mismatch has stopped many retirement savers from transferring their funds into more tax effective QROPS to avoid reporting any fund growth to the IRS.
QROPS US and double taxation agreements
The key to unlocking a USA QROPS is a double taxation agreement (DTA) – but not the obvious one between the US and Britain.
Instead, QROPS providers have looked towards a DTA between the US and Malta.
Malta has many of the same regulatory advantages as the UK.
Both are full members of the European Union and both have strong pension regulators.
The difference is Malta has special terms written into the DTA that agrees registered pensions on the island are recognised by the IRS.
This opens a world of opportunity for three main QROPS investor groups –
- US citizens who have pension funds in the UK – these can be British expats living in the US or US nationals who have worked in the UK and returned home
- British nationals with pension funds in the UK who want to live permanently in the US
- International workers who have British pension funds who are moving to the US
Another advantage is the unlocking of US foreign tax credits to set off against tax charges in the US.
Unlocking foreign tax credits
Any American who has worked in Britain will have picked up foreign tax credits due to the disparity of top rate tax between the two countries.
The current UK top rate of income tax is 45%, although the rate has peaked at 50% in recent years, while the US equivalent rate is 35%
Malta QROPS benefits
Malta QROPS offer retirement savers a range of features and benefits:
- Retirement from aged 50
- A 30% tax-free lump sum on retirement – calculated as a percentage of tax-relieved contributions transferred into the scheme
- No tax on fund growth or benefits paid in Malta if tax is paid in the US
Malta offers a number of different QROPS options depending on transfer fund value and investment choices.
Payments from the fund can be made in US dollars into US bank accounts to avoid currency exchange fluctuations.