UK Pension transfer to USA?

If you’re a US citizen or Resident with a UK pension, you should consider the transfer of your UK pension to USA. Moving your UK pension to the US via a QROPS or SIPP could be a good option.

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UK pension transfer to USA rules have changed in recent years. Many US citizens receiving a UK pension and living in the USA aren't sure if they should be declaring their UK pensions and annual gains to the IRS, or if they'll have to pay both UK and US tax on their income. Similarly, many of us are unaware of Inheritance Tax implications if we live overseas and have a UK pension.

When will my UK pension be paid to me?

What benefits can you take from UK pension?

How will my UK pension be taxed in the UK and the USA?

What forms need to be filed with the IRS with regard to my UK pension?

We're here to help

We can answer all your questions about the options available to you. You may want to consider moving your UK pension to the USA and amalgamating it with your 401K, IRA or SEP – we can advise if this is the best route to help you achieve your goals.

We can also help calculate how much of your current allowance you're using if you have a UK final salary pension and/or multiple pensions in the UK– and even give you ongoing advice about the investment performance of your UK pension.

Option 1: Leave your UK pension invested in your existing plan in the UK.

us citizen receving uk pensionIf you leave your pension invested in the UK, you should be able to start taking benefits from it from the age of 55 but there are tax implications.

If you live in the USA, but you're classed as a UK resident for tax purposes, you may have to pay UK tax on your UK pension. We can help establish if this is the case for you or not.

If you're not a UK resident, you don't usually pay UK tax on your UK pension, but you may have to pay tax in the country you're living in – and if you live in a country that doesn't have a Double Tax Treaty with the UK, you may even have to pay tax in both countries. The USA does have a Double Tax Treaty with the UK but if you're considering retiring in a different country this may not be the case.

Some defined benefit UK pension plans and some older personal pension plans and money purchase/defined contribution UK pension plans may not be written under the new Flexible Access Drawdown rules and therefore may restrict how much and when you can take any benefits. Some pension plans may even only offer the purchase of a lifetime annuity as the pension benefit.


Do you have a Final Salary Pension Scheme?

If so, then some elements of your pension may be guaranteed. This is really important, because if you choose to transfer your UK pension it's likely that you will lose some or all of these guaranteed benefits.

You'll receive your UK pension payments in sterling, wherever you live

This means that they're subject to currency fluctuations. These variations may go in your favour or they may not, but over the last ten years alone, sterling has varied by as much as 42% against the US dollar.

Your UK pension payments will be classed as earned income

So they may be liable for income tax, depending on your other earnings.

You can take up to 25% of your fund as tax-free cash, known as a PCLS or tax-free lump sum

But if you choose to take the balance of the fund as a lump sum, you'll pay tax on it at your highest marginal rate. It could even push you into a higher income tax bracket.

What is the Pension Commencement Lump Sum (PCLS)?

PCLS is often known as 'tax-free cash' or a 'tax-free lump sum'. It's a tax-free payment which most people can receive when they start accessing their UK pension benefits and it's normally 25% of the value of the pension benefits being accessed.

It's important to get advice on how to invest a lump sum. We can provide you with a number of options that will suit your individual circumstances.

Your fund will be subject to the Lifetime Allowance

Which means that if it grows beyond the LTA limit of £1,055,000 you could be liable to pay tax of 55% on the surplus.

What is the Lifetime Allowance limit? and how much is the Lifetime Allowance tax charge?

The Lifetime Allowance limit is currently £1,055,000. You usually pay tax if your UK pension funds are worth more than this limit.

You don't pay the tax charge until you take your pension savings over and above your Lifetime Allowance - and how you take those pension savings matters. Take them as a lump sum and the charge is 55%.

We can give you free impartial advice to help you keep your tax bill to a minimum.

Your beneficiaries won't pay Inheritance Tax on your pension if you die before 75

But if you die after age 75, then your beneficiaries will be taxed at their marginal rate. We can explain what these current rates are and how Inheritance Tax may impact your beneficiaries.

If you have a UK State Pension

You can claim a UK State Pension abroad if you've paid enough UK National Insurance contributions to qualify. You can get a State Pension statement if you need to find out how much State Pension you may get. To claim your pension, you can contact the International Pension Centre

Option 2: What is an International Self-Invested Personal Pension – or SIPP?

transfer Uk pension to USAA SIPP is a flexible type of personal pension.

It offers a wider choice of investments than a standard pension plan – you're not restricted to a small range of funds operated by one insurance company or bank as you are with many UK personal pension plans.

An International SIPP is often the most suitable choice for someone living outside of the UK and the EU. It offers greater control over where your UK pension money is invested and how benefits may be paid to you. They are very often multi-currency too and can offer investments and benefits in USD as well as GBP.

How does an international SIPP work?

It offers flexible investment choices

Retiring outside of the UK on a sterling-based pension exposes your fund to unnecessary currency risk. With an International SIPP, you can choose from a wider range of investments and in different currencies, not just sterling. The combined effect of better investment choice and currency control can have a very powerful effect on the growth and size of your pension pot at retirement.

It offers flexible benefits

Unlike most existing UK-defined benefit and personal pension plans, an International SIPP will offer you Flexible Access Drawdown. This means there’s no cap on the amount of benefits you can take in any financial year once you’re over the age of 55.

You can consolidate your various UK pensions into a SIPP

This makes them easier to manage and generally keeps costs lower.

You can take up to 25% of a SIPP as a lump sum, UK tax-free

The rest can then provide an income that will be taxed according to your status at the time you retire.

You could take benefits gross of UK tax

Under the UK-USA Double Tax Treaty you could take all benefits free of UK tax and choose to simply settle any taxes due locally in the USA.

Your beneficiaries won't pay Inheritance Tax on your UK pension if you die before 75

But if you die after age 75, then your beneficiaries will be taxed at their marginal rate. With an International SIPP, if your beneficiaries live outside of the UK there may not be any Inheritance Tax to pay irrespective of the age you are when you die. We can explain what these current rates are and how Inheritance Tax may impact your beneficiaries.

Option 3: What is a Qualifying Recognised Overseas Pension Scheme – or QROPS?

uk pension transfer to USA

QROPS allow British expats to transfer their UK pension overseas and they may be a better option for people with large pension funds

They mirror regulated UK pension schemes so they leave you in a similar tax position as if you were still investing in the UK.

The Lifetime Allowance only applies at the time of transfer, therefore a QROPS may be a good alternative for UK pension funds approaching or already over the current UK Lifetime Allowance.

A QROPS has to meet certain criteria. It must be:

  • Established outside of the UK
  • Recognised for tax purposes in the country where it's located
  • Regulated in the country where it's established.

How does a QROPS work?

You choose the funds that best suit your risk profile

There's a wider range of investment opportunities and no compulsory annuity purchases.

There's a reduced risk of currency fluctuations

Retiring outside of the UK on a sterling-based pension exposes your fund to unnecessary currency risk. With a QROPS, you can choose to invest – and receive – payments in different currencies.

You can take up to 25% of a QROPS as a lump sum, tax-free in the UK

Although you should be aware that certain countries might apply a tax.

The Lifetime Allowance Tax doesn't apply to QROPS

So there's no maximum amount you can hold in your pension fund. You won't incur this UK tax charge.

A QROPS sits outside of your estate for Inheritance Tax purposes

If you die while living overseas, the full value of your pension fund will pass to your family.

Are there disadvantages with the transfer of a UK pension scheme abroad?

Deciding what to do with your pension is important for your future so you need to look at any disadvantages of transferring it as well as any benefits. You should consider your options sooner rather than later.

Everyone's situation is different. You may have a number of personal pensions in the UK, you may be a member of a Final Salary Scheme, you might want to benefit from your whole pension before you die – or plan for your family after your death.

Whatever your objectives, we can help.

Our pension specialists are based in the USA – and they're experts in UK pensions and the options available to British expats living in the USA.

We offer a comprehensive, impartial review – free of charge

Our free guide has lots of information about your options, what they mean and what you should take into consideration before making any decision.

UK Pension transfer to USA Free Guide

If you live in the USA we can give advice by phone, email or Skype.

Contact us today for more information.

Schedule a free (no obligation) 30 minute consultation call at a time that suits you.

Book a FREE Consultation