A Qualifying Recognised Overseas Pension Scheme (QROPS) is an option available to people who live, or are planning to live abroad, but have managed to accumulate a UK pension. There are a variety of QROPS products on the market across over 30 jurisdictions globally, and they can offer varying degrees of benefits, including tax efficiency , flexibility, and inheritance options that frankly aren’t available in the UK.
Since the introduction of the scheme in 2006, thousands of UK pension holders no longer residing in the country have been taking advantage of the transfer. To qualify, the QROPS must meet certain criteria set out by HMRC, failure to comply with these regulations inevitably leads to the scheme being excluded from qualification.
There are over 700,000 UK expatriates residing in America in 2014, and surveys suggest that over 55% have UK-based pensions in place. Add to this, the number of US nationals who accumulated savings into a pension while residing in the UK, but have since moved back, and you get a flavour for the sheer numbers that could benefit from QROPS.
Never the most popular organisation in the world, the Internal Revenue Service (IRS) do, of course, have their own very special take on QROPS. They do not recognize the schemes, and as such any transfer from the UK into an American-based scheme will be subject to federal income tax on contributions, transfer, and growth.
This matter is certainly complex, and each case must be considered and advised on an individual basis, there is no answer which goes across the board unfortunately.
The main consideration is to what extent any income upon retirement will be subject to tax from either the UK or US, and this much be researched thoroughly.
Other issues include making certain that the tax regimes between the US and the country in which the savings are transferred, complement each other.
Malta is one jurisdiction which has a relatively recent Double Taxation Agreement signed off with the US.
Specifically covered within the agreement are pensions and tax. Because this agreement has been signed off, Maltese QROPS are now recognized by the IRS and are not subject to hefty tax impositions. The UK on the other hand, despite having a Double Taxation Agreement in place, does not have one which covers pension transfers.
The IRS takes a particularly dim view of the UK’s apparent generosity in terms of pension contributions, and as such does not wish to be associated with the allowances provided by the country.
The Malta option is one which offers significant tax advantages for those residing in the US, including the protection of any growth within the fund.
With the recent implementation of FATCA, the IRS have seen their popularity in certain circles fall to an all-time low, and the advantages offered by Malta QROPS currently are being snapped up by many disillusioned residents,
as a means to get something back from one of the strictest tax regimes in the world.