UK Citizen in New York?
Whether you’re enjoying the fast–paced lifestyle of the Big Apple or retiring to the Old West, if you’re an expat in the Land of the Free you may need a hand transferring your UK pensions.
As a US resident or citizen, there are unfortunately some limitations on the type of pension that you can use when it comes to transferring UK pensions. Cross-border financial planning becomes incredibly complex when you factor in different jurisdictions and tax authorities, such as the IRS and HMRC.
This blog post takes a look at options for expats with a UK pension in the US.
If you have previously lived and worked in the UK, you are likely to have various pension schemes, and potentially with different providers, whether it be a company employer scheme, defined benefit scheme or even a personal pension.
Drawing down an income as a non-UK resident is often difficult due to the administrative process. As UK pensions are obviously held in sterling, they therefore pay in sterling and usually have UK tax deducted at source. There may also be other administrative charges triggered by making cross-border transactions on top of converting currency.
This can all make the experience of drawing down a pension rather costly and incredibly stressful. Therefore, it is always worth considering the other available alternatives.
Option 1: Transfer to an International SIPP
The first option to consider is a transfer to an International SIPP (a Self Invested Personal Pension). This offers the protection of still being registered and regulated by HMRC and is designed specifically for non-UK residents. It allows you to consolidate numerous pensions into one pot and invest according to your requirements. It is US compliant and therefore enables you to use an offshore investment platform within the trust, which gives you access to a broader range of investments.
It has the advantage that you are able to pay into any bank account in the world in all major currencies. Investments and holdings can also be held in all major currencies, so you can invest and drawdown in US dollars (USD). This is something worth considering with the uncertainty caused by Brexit and the potential volatility of Sterling.
If you apply for an NT Code to run alongside your International SIPP, all proceeds will be paid out gross of UK taxation, saving the hassle of dealing with double-taxation and pursuing any refunds from HMRC.
International SIPPs offer very low annual trustee fees, especially when compared to the costs of a QROPS.
Option 2: transfer to a QROPS
A QROPS (a Qualifying Recognised Overseas Pension Scheme) transfer used to be a good, solid, viable option for US residents, but the introduction of the overseas transfer charge (OTC) by HMRC has made it a redundant choice in most cases. Its introduction several years ago meant that any transfer to a QROPS outside of the European Economic Area (EEA) would incur a penalty of 25% and therefore isn’t worth considering for the majority of US residents.
Option 3: A 25% tax-free cash payment?
Unfortunately, this is only available in the UK. As a US resident and taxpayer, any lump sum would have to be declared and would be subject to income tax. Therefore, it probably doesn’t make sense to take this one-off payment as it could push up your marginal tax rate and result in a large bill due to the IRS.
The best option for a UK Citizen in New York
Everyone has different needs and long-term goals. Cross-border financial planning depends on individual circumstances and it is of vital importance to take independent financial advice in order to find a solution that suits you.
Harrison Brook are fully regulated by the Securities and Exchange Commission (SEC) through our US advice network. Get in touch with us today to see how we can help you plan for your financial future.