Tax refund on pension transfer?

Malthusian

EdSwippet wrote: »

Unlike 401k and IRA plans, UK pensions allow only extremely limited (that is, before age 55) access to pensions. Only things like a terminal illness let you access a pension before then.

Ill health which forces retirement lets you access a pension before then, with the same tax position as normal post-55 access. (*edit* If the scheme rules allow it, which they may not.) Terminal illness (death expected within 12 months) makes that access tax-free for 100% of the fund (*edit* and as far as I'm aware no scheme would refuse a terminal illness payout). Not relevant to the OP (hopefully) but this is a common misconception.

As for the OP's actual query, this looks like a case of "I must do something about Brexit, this is something, therefore I must do this". The OP has not explained why he has discounted simply switching into non-UK assets as a way of avoiding any impact of Brexit.

The impact of foreign exchange friction that Ed mentioned can't be avoided unless perhaps he retains a UK bank account, withdraws his pension money in Sterling and spends it during a visit back to the motherland (avoiding the need to repatriate it to the US).

[Deleted User]

There is Brexit, the effects of which can indeed be mitigated from the point of view of one’s investments. In any case the market has already priced in this risk.

What is less well understood is the risk of Her Majesty's Most Loyal Opposition taking power. They have some interesting policies designed to confiscate from the shareholders. When implemented elsewhere similar policies resulted in capital controls. Now... That would be a concern for anyone with a foreign residency and a UK pension (as well as for people with assets who are based in Britain)

According to the Internet, there are ways of transferring pensions out of UK, eg via QROPS funds in Malta and Hong Kong but it won’t be cheap.

LEH36

Mordko - Exactly, thank you!

I'm just looking for the best way to move the fund, it doesn't really matter why I want to move it, the fact is I have lost faith in the UK and don't wish to keep any funds there.

Unfortunately I'm not yet 55 either, so I can't draw it down easily at all.

*Sigh* the Americans have this all figured out!

[Deleted User]

You might have to go with something like Isle Of Man International SIPP. You will be hit with “tax” wherever you transfer to. Every year UK seems to be closing more outlets for pension transfers out of the country

LEH36

I'll check it out - thanks for all the feedback - its very useful as this is a massive learning curve for me

EdSwippet

LEH36 wrote: »

I'll check it out - thanks for all the feedback - its very useful as this is a massive learning curve for me

If going this route, note that the US will see a QROPS transfer as a taxable event. Not just that, but any gains in the funds in future will also be taxable annually at your highest US marginal rate, along with the potential for extremely unpleasant PFIC tax reporting. More in this paper:

https://www.greenbacktaxservices.com/blog/us-expat-tax-impact-from-qrops/

Foreign pensions are a nightmare for anyone with an international lifestyle, but doubly so when you are a US resident. There is a ton of annual reporting, even where a pension is protected by treaty, as is the case for UK pensions. FinCEN form 114 and FATCA form 8938, with penalties for non-filing that can over time exceed the balance in the pension (yes, really).

And if you are unlucky and the pension isn't covered by treaty, or you lose treaty coverage -- which looks like what will happen if you move a UK pension to QROPS -- a heap of additional stuff such a foreign trust form 5471 and PFIC form 8621. And on top of all of this, whatever additional misery a US state tax system might add.

Depending on the sum involved, you might need to be extremely careful with this. Unfortunately, this whole area of tax is both massively complex and also ridden with huge tax traps, mostly on the US side of things.

Dox

LEH36 wrote: »

Its an absolute rip off and something I've come to expect with UK companies - also the tax office just refused to give me any advise regarding the tax payable on a transfer as they are saying they have no record of this pension? Should they have?

Yes. What's the pension scheme called/who is the pension scheme provider?

LEH36

Its with the USS - which is a huge scheme, so it sould have been recorded and documented properly? Its also years old, I am assuming this is the companies responsibility?

JoeCrystal

So how long have you worked for universities? It is not that straightforward then. If you been a member of USS for more than two years, then your pension became deferred, the value increases by inflation. How much pension did you build up then? It is not a pot of money as it is a Defined Benefit pension scheme. You have a promise of the pension, which is far more valuable.

If you worked for less than two years, then you can have a refund of your contributions less than taxes, a deferred pension or a transfer of the value of your full benefit to another pension scheme.