Can I transfer my UK pension to my US 401K? You may be a US resident who’s built up UK pension funds, and are wondering if you can roll it into your US 401K.
A 401K is a retirement savings plan offered by employers. It works in a similar way to a UK defined contribution scheme. Employers and employees contribute to a pension and invest the money. It’s tax advantaged as contributions are deducted from gross income, therefore it’s a tax efficient way to save for retirement.
Unfortunately, due to the tax relief on contributions, 401K’s do not allow transfers in from UK pension schemes.
As a result, you could be wondering what to do with your UK pension. Your current scheme may not provide flexible access as a non-UK resident, and it may be invested in an expensive scheme with limited fund range.
Can I transfer to a QROPS?
Qualifying Recognised Overseas Pension Scheme’s (QROPS) used to be a viable option for non-UK residents. It allowed pension members to transfer their schemes out of UK jurisdiction and only pay income tax in your country of residence (due to the double tax treaty).
However, on the 9th March 2017, the UK introduced the overseas transfer charge (OTC). This legislation imposed a 25% tax charge on any pension transfer to a QROPS for individuals residing outside of the European Economic Area (EEA).
Therefore, as the US is outside the EEA, it became a redundant option to transfer your scheme. The main option now available to US residents is an International SIPP (ISIPP).
What is an International SIPP (ISIPP)?
An ISIPP is still a UK pension however it is specifically designed for non-UK residents. It provides your scheme with the robust protection of the UK FCA, whilst allowing for flexible access in your country of residence.
If you transferred your UK pension into an ISIPP, there would be no tax charge like a QROPS. There are also no restrictions on access – you can draw the money down as and when you like.
Furthermore, if you apply for your Nil Tax (NT) code, you can have the income paid out gross of UK taxation. You would only need to declare your income in the US as opposed to claiming the tax back.
Although you cannot consolidate your UK pension with your US 401K, an ISIPP provides a pension built for people in your situation. You can hold the pension in the currency of your choice and implement an investment strategy in line with your retirement plan.
Importantly, the fees on an ISIPP are very low – Novia offers an ISIPP for £216 per annum. The platform also allows you to invest in over 7000 funds including; Mutual funds, Discretionary Fund Managers, ETF’s and many more.
How can I get the process started?
Firstly, we need to assess your current pension scheme to determine whether a transfer is required. We will look at factors such as the pensions costs, investments and accessibility and compare against a potential solution. We can then prepare a report highlighting our advice taking into account your overall financial picture.
If you are interested in getting some advice on your current UK pension as a US resident, please get in touch with us at Harrison Brook. We can then organise an initial meeting to better understand your situation.