Can I transfer UK pension to my 401k in the US?

Is it possible to transfer UK pension to the US? This is a question often asked by the estimated 750,000 British expats now resident in the US, or maybe you are one of the many thousands of US citizens who have previously worked in the UK and built up some form of UK Pension benefits.

If you’ll be residing in America for the long term, then naturally you’ll want to look at a transfer of your UK pension into a 401k or IRA in the US.

Transfer UK pension to the US

It is possible to transfer your pension in the UK into a US retirement plan, but only in very limited circumstances. Under current legislation, you won’t be able to transfer your pension to a 401k. 

➤ Find out why MyExpatSIPP is the ideal solution for US residents & citizens

When you or your employer make contributions to a pension scheme in the UK, you can receive tax relief on that contribution, sometimes up to 45%. Getting tax relief on pensions means some of your money that would have gone to the government as tax, goes into your pension instead. This is essentially the same as tax deductible contributions in the US.

The government get some of this revenue back when you draw your pension, as UK pension income is taxable. The UK government aren’t too keen on this potential tax revenue leaving the country, so the only way to move your pension away from the UK, without incurring significant tax charges, is to transfer to a QROPS.

Transfer your pension to a USA QROPS

QROPS is an abbreviation of the term, Qualifying Recognised Overseas Pension Scheme. It is an overseas pension scheme that HM Revenue & Customs (HMRC is the IRS equivalent) recognises as eligible to receive transfers from registered pension schemes in the UK. To qualify as a QROPS, the scheme must meet a number of requirements set by HMRC.

The QROPS regime was originally proposed to allow individuals who had worked in the UK, the ability to transfer UK pension to their new country of residence. However, over time the government saw that QROPS were not being used for their intended purpose, and many people were transferring to QROPS in countries with no connection to the individuals, simply to try to avoid UK taxes. This is one of the reasons why the Overseas Transfer Charge was introduced.

Overseas transfer charge

From 9th March 2017, transfers to QROPS attract a 25% tax charge with a few exceptions. Even if you are exempt from the charge on transfer, but then your circumstances change within 5 years, such as moving to another country or moving your QROPS to another country, then you may have to pay the 25% tax charge at that point.

There are currently no USA QROPS (as of 23 August 2021). You can find the full list of QROPS here: QROPS list

You can try to transfer your pension to a US pension scheme that doesn’t have QROPS status, however, this would attract a UK tax charge of over 55% which is payable by you and the pension scheme and therefore most UK providers will block the transfer.

Transfer your pension to a SIPP

If you can’t move your pension to a USA QROPS, you should look at choosing a UK pension plan that is catered to your needs as a current or former expat.

MyExpatSIPP offers an online self invested personal pension (SIPP) service that has been designed especially for expats and non-UK residents. You can invest your pension in a wide range of investments including ETFs, Mutual Funds, Shares, Bonds and Investment Trusts. You can even hold investments in US Dollars.

A SIPP offers complete flexibility over withdrawals from age 55 and we can even pay your pension directly into your US bank account, something a lot of mainstream UK pension providers won’t do.

If you have a number of UK pensions, you should consider consolidating them into our easy to manage online pension. That way you can reduce the fees you’re paying and keep administration to a minimum.

A UK pension transfer is not classed as a distribution for tax purposes. You only pay tax when you take a withdrawal and due to the UK/US double tax treaty, you should generally only pay tax in the US.

It’s easy to arrange a UK pension transfer and you can open a SIPP account online in a matter of minutes. We will then we handle the rest and keep you updated with progress.

Speak to us about taking control of your pension with a UK pension transfer to a SIPP.

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