QROPS USA Post 2015 and a UK Actively Managed US Dollar SIPP
Can I Transfer My UK Pension to a 401k in the USA Under New UK Pension Rules in 2015?
“No. Your pension absolutely cannot be transferred to a 401k even with the new pension freedoms in the UK coming into force in 2015.”
However, the advice for British expats and American returnees transferring UK pensions to the USA has changed now through the new “flexible pension” rules which have come into place from April 6th, 2015.
We will show you how you can grow a $100,000 pension pot at 50 years old into a $400,000+ pension pot at retirement with an actively managed US Dollar SIPP account…
… and for high net worth individuals, we will show how to grow an $800,000 pension pot into $22.5m on death.
We now recommend keeping your pension in the UK under FCA regulated rules, but transferring your defined contribution (DC) or defined benefit (DB) pension to a US Dollar denominated SIPP in order to make sure you have a steady pension income stream which isn’t affected by currency fluctuations and protected from currency attacks. Do you remember Black Wednesday?
If you keep your pension in the UK, you can move your hard earned pension into US Dollars and still minimize your tax bill whilst maximizing your returns as well as take advantage of the new pension flexibility rules which George Osbourne announced in the Autumn statement.
The new flexible pension freedoms mean that you can withdraw as much as your pension as you like, whether as a cash lump sum or as a pension income. Due to the Double Taxation Agreement between the USA and the United Kingdom, you pay no tax on the growth of your SIPP and only pay tax in the US on income when you draw your pension in the US.
For large pensions, 400 GBP+, we recommend moving to a QROPS to avoid the high death tax charge in the UK, but advice will vary depending on the type of pension you hold and how you would like to invest it, as well as taking into account residency, risk issues and estate planning.
But, first, please let us introduce the actively manages US Dollar SIPP which would mean your pension remains in the UK, but is transferred from Pounds into US Dollars.
An Actively Managed US Dollar SIPP
The benefits of having a US Dollar pension under UK SIPP rules
- UK and USA have DTA, so you only pay US income taxes
- Your pension is invested in US Dollars and paid into your US Dollar account
- Thanks to the new pension freedoms, you can take as much of your pension as you like, you just pay your highest marginal tax rate on income in the US
- There is no UK income tax to pay on your pension
- There is no tax on growth of your pension
- On death, it can be transferred with no tax on death before 75
- After 75, it can be transferred to whomever you like and they just pay the income tax on it at their highest marginal rate or 45% tax on a lump sum
We recommend using an actively managed US Dollar SIPP unless you have a particularly large pension and are worried about your IHT bills and the tax on your estate and pension upon death.
Fees for an Actively Managed US Dollar SIPP
The fees are 400 GBP upfront plus 400 GBP per year afterwards. Your pension pot will be actively managed on your behalf on a monthly basis. This is the best way to protect your pension from market crashes and target the highest returns with the least risk.
Hudson James Investment Management can comfortably target 20% – 30% returns year per year whilst being less risky than investing in the S&P 500. Click here to see the actively managed US dollar performance.
Returns on an Actively Managed US Dollar Account
Assuming a growth rate of 10% per year which Hudson James can easily target, a $100,000 pension pot at 50 should grow to around $420,000 by the time you retire at 65.
QROPS USA in the Post-2015 Pension Flexibility World
We now recommend a transfer to a QROPS in the USA for large pensions only. At the moment QROPS transfers to Malta do not afford the same pension flexibility freedoms as the UK, so you would be limited to taking a 30% cash lump sum and the rest of your pension to produce you an income for life.
This is no bad thing, in fact, until 2015, it is what the government recommended and harshly criticized offshore pension schemes which allowed those freedoms before HMRC did a massive U-turn.
A QROPS in the USA is really set up for estate and inheritance planning. Particularly if you have any cash portion in a UK SASS or UK self administered pension scheme and looking to transfer to the USA.
If you have a large pension pot of 400,000 GBP or more, you may want to consider moving your pension to a QROPS in the USA. Why? There is ZERO tax on death.
A pension left in an actively managed US Dollar SIPP has a 45% tax on death on a lump sum payment. If you have built up a pension of 400,000 GBP by age 55, that could easily grow to 800,000 GBP by age 65 at retirement.
If you then had a heart attack, a stroke or contracted cancer which affects 1 in 4 men as well as 1 in 5 women, then your wife or partner would lose 360,000 Pounds on death immediately if they took a lump sum payment which might be needed to cover a mortgage or other fees!
The Benefits of an HMRC Approved USA QROPS in the Post-2015 Pension World
- Malta has a Double Taxation Agreement with the USA
- A Malta QROPS avoids tax in the UK and in Malta
- No tax on UK income
- No tax on death in the UK. Avoid a 45% tax on death post-75 on cash lump sum
- No tax on growth of your pension
- Only pay US income taxes
- Your pension is paid into a US Dollar bank account or offshore bank account of your choice
- Invest into any mutual funds or ETFs of your choice
- Self-managed US Dollar QROPS is allowed although there are some limitations and restrictions
QROPS USA for High Net Worth Clients
For high net worth clients, often income from your pension pot may not be as important due to other income streams. Maximising returns and avoiding taxation is often the top requirement along with estate planning.
A QROPS avoid tax on death. So, if a client wants to transfer his UK pension to a QROPS in Malta, there is no tax on income or growth in the UK or Malta. If you then transfer your pension monies to an offshore bank account and remit no cash to the USA, then there will be no tax.
That way, your entire pension will grow for your spouse, partner, children or grand-children until death. This will maximize your pension pot and there will be no tax in life or death.
Let’s imagine you have built up an $800,000 pension pot by age 50. We can easily target 10% per year returns after all fees with less risk than the S&P 500 using a mix of US equity and bond ETFs. This will keep fees down and ensure growth. This is professionally manged on a monthly basis.
If you don’t take a pension whilst alive and you die at 85, your pension pot should be worth an incredible $22,500,000 on death.
How Do I Pay US Taxes on My UK SIPP or QROPS in the USA?
A US Dollar SIPP and a QROPS in Malta file tax returns in the UK, but you must file a tax return yourself in the USA.
We can introduce you to a US tax attorney whose job is to make sure you file your taxes correctly as it can be complex in the United States. It is relatively inexpensive.