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Moving Abroad? Here’s How to Transfer Your Pension

April 15, 2024

Whether relocating to the United States or United Kingdom, many taxpayers seek to consolidate their assets to one country to streamline their income tax filings. Here are some key considerations.

Taxpayers should be aware that in some cases when transferring your pension from one tax jurisdiction to another it may involve closing the pension in its entirety and transferring the funds into a registered plan in their new country of residence. Let’s dive in.

Transferring a U.S. pension

For example, under no circumstances would a U.S. 401(K) plan be eligible for a direct transfer to a U.K. plan. In most cases, if seeking to move a U.S. pension to the U.K. the taxpayer would have to close the pension account, which would give rise to a taxable event in the U.S. and potentially additional early withdrawal penalties.

An individual relocating from the U.S. to the U.K looking to transfer their pension accounts would have to close it in its entirety, and pay income tax on the funds, max. 37%. If that individual is under the age of 59 ½ an early withdrawal penalty of 10% could also be imposed. Depending on where the taxpayer was located at the time of account closure the transaction could also be reportable on a U.K Self-Assessment filing.

Transferring a U.K. pension

To be eligible to transfer a U.K. pension to the U.S., the transfer must be made to a HM Revenue & Customs (HMRC) Recognized Overseas Pension Scheme (ROPS). Taxpayers should be aware there are currently no U.S. approved schemes recognized by the HMRC and as such if a transfer is initiated then a U.K. tax charge of 55% could be levied on the pension scheme and taxpayer.

Alternative transfer options?

Taxpayers must be mindful of seeking alternative transfer options, such as International SIPP (Self Invested Pension Plans) as this would lead to additional IRS reporting and tax implications for the taxpayer.

In general, having a non-U.S. pension may trigger any of the following reporting obligations:

  • FinCEN Form 114 (FBAR)
  • Form 8938
  • Form 3520
  • Form 8621

These are some of the considerations to contemplate when transferring your pension either onshore or offshore.

Questions? Feel free to contact a member of our International Tax Services Practice.

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