QROPS Growing in the USA
Qualifying Recognised Overseas Pension Schemes (QROPS) are becoming increasingly popular in America, due to the loophole represented by a double-tax treaty signed with Malta – a country in the top three jurisdictions of choice since QROPS were introduced.
Previously it was largely viewed as near-impossible to arrange for a viable, qualifying transfer to the USA, this was due to IRS legislative rulings which stipulated that because of the difference between the UK and the US tax structure, any transfer from UK pensions to 401k pensions were strictly non-compliant.
So while a transfer from a UK pension into a QROPS was still possible for those residing in the USA, the unfortunate bi-product was severe taxation and a loss of a substantial amount of savings.
A QROPS provides a long list of benefits to those that have worked and saved in the UK, who now plan to move – or have moved – abroad. This includes US nationals who are now back in America, but still have their UK pension in Britain.
The notable benefits of QROPS for those in the US are:
- Investment options open up
- All growth free from US Income Tax
- Use tax credits (foreign) to offset any taxable income from transfer
- Take 30% of total fund as lump sum
- Death benefits to spouse or beneficiaries
There are three groups of people for whom QROPS are very much worthwhile considering:
- British expats with UK pensions who are now living in America
- US citizens who previously worked and saved pensions in the UK but have since moved back
- International workers who now live in the USA but previously worked and saved a pension in the UK
Malta is very similar to the UK in that in terms of financial credibility; it has plenty. The country is a stable member of the EU, is extremely well-regulated and has a long and proud history of financial security.
Although the UK does have a DTT signed with the US, Malta has a differential within its treaty, which categorically states that its registered pensions are recognised by the US. Meaning that those residing in the US will be able to transfer their UK pensions into a Maltese QROPS, without fear of tax repercussions form the IRS.
While the benefits are clear, a QROPS won’t always be appropriate for everyone. Much can depend on the size of the funds and the individual’s personal circumstances. Finding a fully-qualified financial advisor to offer expertise, tailor-made for the individual, should come first if considering QROPS as an option.