What Should I do With my British Pension if I Move to the US

Many times the answer is nothing, but there are certain plans that (although oversold) are not appropriate for Expats in America or American expats that intend to come back to the USA. While Canada and the United Kingdom have some of the best provisions when it comes to double taxation agreements, it doesn’t mean that every vehicle will work between these jurisdictions. When you reside in the UK, your local pension will be covered by this treaty, and therefore distributions would only be taxable in the UK. 

Qualifying Recognized Overseas Pension Schemes (QROPS) can be a beneficial way to shift investments into a currency of choice, change the distribution schedule to when funds are needed (earlier or later in life) or can just be a means of avoiding risk of your former employer going bankrupt and defaulting on their obligations. US taxpayers that were living in the UK, or UK citizens moving to the US with a UK pension plan, may be tempted to transfer their funds into a QROPS plan, as they are highly advertised to UK residents. Unfortunately, the tax implications for a US person may negate any benefits from investing in a QROPS. You would lose the provisions of the US and UK tax treaty as you take your money out of the UK, hence the “Overseas” portion of the acronym. This means that you would be under the provisions of another country that would most likely not be as attractive of a tax regime as the UK. 

The IRS does not recognize QROPS as a qualified retirement account which makes them even less attractive. That means that transfers in or out of the account are taxable events. This eliminates some of the best benefits of a pension. 

As most all QROPS are held outside of the US, the assets invested inside of them would also be considered Passive Foreign Investment Companies (PFICs) by the IRS and this leads to more adverse effects on your US taxes. You can read more about PFICs here. 

Questions About How Foreign Retirement Plans Affect US Expat Taxes?

Before engaging in any major tax changes, please consult with a qualified US tax accountant. To find one in your local area that works on expat issues, you can consult either the ACA Tax Payer Directory or US Expat Directory. Other vehicles might serve you better than this vehicle.

Get a complimentary copy of the American expat guide at https://www.dunhillfinancial.com/american-expat-financial-guide for more information about the financial planning process as an American expat. You can also visit www.dunhillfinancial.com.

DUNHILL FINANCIAL, LLC IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.