Reporting Your UK Pension SIPP/QROPS USA
Tax reporting and compliance is a key requirement for anyone’s financial assets but never more so than in the United States. If you have built up UK pension contributions and hold one or more UK pension fund then it is important to know it is compliant for the SEC and IRS. The same applies to a QROPS – Qualifying recognized overseas pension scheme. The outcome if it is not, is severe. The irony, of course, is that for any United Kingdom pension or QROPS there is no tax liability. Unlike direct investments, cash, income, and property, a UK Pension scheme is not taxable until monies are withdrawn. If you do not declare it however, the implication and penalties are strong.
Reporting Requirements for UK Pension SIPP/QROPS USA
I must caveat the below by stating we are not tax advisers but wealth managers, and as such should always take regulated tax advice from a qualified tax adviser. Below are the standard forms that you should be completing for non-US assets.
Foreign Bank Report – More commonly known as FBAR
This covers any balances held outside of the US with over $10,000. Not only bank accounts but any kind of financial account including pension plans such as SIPP and QROPS. Specifically for UK pensions, this would not include defined benefit or company schemes as the control if held with the employer and not you.
Form 8398
Statement of specified foreign financial assets. This covers foreign trusts, pension plans, and any deferred compensation plan. Only applicable to values in excess of $50,000.
Form 8833
Treaty-based return position disclosure. Relevant when taking your PCLS 25% “tax free” in UK lump sum. Thereafter, if NT (nil rate tax) code obtained will also be relevant when declared withdrawn income. This stops you from paying UK income tax and USD tax upon drawing down monies.
Is the 25% PCLS tax-free lump sum in the UK taxable in the US as a US resident?
This is the million-dollar question. Depending on who you speak to you, your specific tax position, and the state you reside in the answer can be both. Our view, however, is that this withdrawal is taxable in the US. As previously mentioned we are not tax experts however found the following article incredibly insightful. (disclaimer we have no affiliation with this company and purely found the information to be informative and of our opinion). At the end of the day, any pension withdrawal from a UK pension will be subject to tax (somewhere).
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FAQ’s
Is a QROPS my right for me as a US resident?
An article detailing how a QROPS is treated as a US resident can be found here.
How do I apply for an NT code?
An article detailing how to apply for your NT code and negate paying UK tax can be found here.
What types of assets/funds can I hold within my UK pension?
An article covering the assets allocation and portfolio performance can be found here.
How do I go about accessing my UK personal pension scheme monies?
A guide to how drawdown works can be found here
What if the pension provider has told me I cannot access my pension pot as a US resident?
A detailed explanation of the different types of drawdown can be found here
Are there UK Pension plans that will do all the reporting for you?
Yes, there are various pension providers on the market with tailored packages specifically for US residents.
How much does it cost to transfer/consolidate my UK pension schemes to a US compliant one?
A breakdown of associated fees for transferring a UK pension can be found here.
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