QROPS, the USA and FATCA

For a large majority of the ever-increasing number of British expatriates with pensions which remain in the UK, a Qualifying Recognised Overseas Pension Scheme (QROPS) provides a viable and sometimes integral role in retirement planning. This counts for those now residing in Europe, Asia and the Middle East, however arguments still persist over just how appropriate a QROPS is for US residents. In light of the relatively recent introduction of FATCA, and the raft of apparently advantageous amendments to UK pension legislation, those keen to cast doubt over the validity of a QROPS transfer for those residing in the US have been provided with more ammunition. It is true that FATCA reporting and taxing requirements do not extend to UK-based pensions, something clearly stated within the definition given in the two country’s double taxation treaty. A UK pension is seen as a qualifying scheme. A QROPS, however, isn’t. Previously QROPS transfers for US residents were not reported to the IRS by providers or jurisdictions, there was no requirement to do so. However, the one jurisdiction which remains ultimately effective for US residents to be able to gain tax advantages on retirement funds is Malta, and Malta have signed up to FATCA just like everyone else.

Taxable This means that a UK pension transfer into a QROPS will be reported to the IRS, and will be looked upon as a taxable event. It also means that they will go in-depth relating to any gains made on the investment structure of the scheme. This could result in a 30% withholding tax being applied due to being deemed as a non-compliant aspect of the fund. These are extreme scenarios, and may not affect everyone. Providers within Malta specifically designed QROPS for the US market in the knowledge that FATCA was on the horizon. While poor advice and poor decision making could lead to IRS difficulties because of a QROPS transfer, this is not a one-size-fits-all situation. There are those for whom a QROPS transfer will still provide exceptional tax and flexibility benefits, it’s a case of ensuring that in-depth due diligence is undertaken before making any decisions. Where Will You Retire? Consideration must be given to the amount of foreign tax credits held, the size and nature of the funds in the UK – as well as the sector, and the proposed retirement destination. Just because one lives in the USA right now does not mean one intends to retire there, something which a worrying number of financial commentators seem to overlook. QROPS are open to anybody not residing in the UK and are available in a variety of jurisdictions. These schemes are modern in design and tailored to fit into the international financial landscape we now find ourselves in. As with any decision pertaining to retirement, an element of caution is recommended, and credible advice should be heeded, perhaps even from a variety of sources to gain a clearer picture. The final thought: If QROPS were not beneficial for those residing in the US, it is extremely unlikely that any provider would invest invaluable time and money into creating schemes specifically designed for the US market. FATCA has changed an awful lot for those it involves, and with the UK and Australia looking set to follow suit with their own versions, the way we transact globally regardless of nationality could be set to change forever. Not Exempt While QROPS are most certainly not exempt from FATCA’s requirements, the finer details of exactly how severe the impact might be varies significantly from one person’s situation to another’s. It’s not black and white. As always, seek advice which will be provided based on YOUR circumstances. Generalised information offers no real insight to assist with personal decision making unfortunately.