SIPPs (Self Invested Personal Pension) is a type of pension for people happy to make their own investment decisions. Below we will answer some frequently asked questions by expats.
Is It Worth Me Putting My UK or US Pension in a SIPP?
I am not going to comment, on individual pensions. But personally, I am a big fan of pension freedoms in theory.
If you are a U.K expat or still in the U.K the option to have pension investments what you are controlling, it seems a win to me, however, each person has individual circumstances. However, let’s look at why, well look at other developed countries U.S 401k gives you a chance to roll it over into an IRA and invest as you choose your investment.
Australian Supers, get an average 5% and give you more flexibility in the pension over the investment.
While the U.K pension system for me seems very stable, for most pensions plans. The returns are mitigated at best and are not done for individual circumstances. So, therefore, having more freedom, in theory, is a good option and can give you higher returns than what most schemes are getting by investing in low-interest-rate bonds.
The U.K SIPPs platforms are low cost, such as Vanguard 0.25% a year, and set portfolios for a novice investor with Nutmeg that has made Sipps your pension somewhat easier. The one downside with Nutmeg is that it is a portfolio based on your risk profile and not personal circumstances, however, is very seamless to use.
Why Should I SIPPs My Pension
Well again I can’t comment on individual cases but sometimes some pension schemes come with cheap share buys in the company or a set number of shares or perks such as discounts on products if you stay in the company pension. To get the most personal answer to your circumstances, it is worth speaking to an advisor and they will be able to help you. An advisor does need to know as much detail as possible in order to help you the most.
With final salary pensions again, this depends on what scheme it is and how much is offered to get out and your situation. A lot of things need to be taken into consideration such as time frame, objectives, amounts, fees & where you currently are. I would highly recommend seeing a few advisors if you have one of these. But remember they are gold plated and rarely used anymore for a reason. In fact, the law now states that you have to see an advisor if your pension is worth more than 30,000 GBP. This stops people from investing in the wrong products and fads where they could have the rug pulled from underneath them.
When Is The Best Time To SIPPs My Pension?
Again it depends on your situation but I have seen a few companies such as Royal Mail & British Steel go into administration, if the pension scheme you are in is under threat I would see an advisor if you are considering to move.
I don’t think there is a perfect time, I believe it to be similar to trying to perfectly time the markets, I think staying up to date with the knowledge and if you want to look at regaining control of your pension and controlling your portfolio to suit your individual needs, then it is a good time to ask some questions.
What Are The Drawbacks of a SIPPs
Well, employers don’t have to contribute to your SIPPs and they likely won’t. Also, they may not let you SIPPs the pension if you are still working with the present company.
Benefit of SIPPs
Well the average by a study of Americans by LinkedIn, changes jobs 10 times before the age of 40 and only 3% by a survey by the balance careers found that only 3% stay in jobs, this means a lot of different pension schemes if you don’t manage them well. SIPPs give you the ability, to have one stable pension that you can contribute through the duration of your working life and is portable to wherever you are living currently. For example, you can be working in Singapore and still pay into your SIPPs.
U.S citizens with U.K pensions
Section 1 – U.K SIPP for U.S Personnel
If you have worked in the U.K for a substantial time you are likely to have accumulated a U.K private pension. If this is the case, under the April 2015 pension freedom act in the U.K you have the ability to transfer your pension, if you are living in the U.K this would be most likely be transferred to a SIPP if you are living the EEA. It is most likely to be done into a QROPs with a Malta trust. For most other places it is likely to be an International SIPP.
For further reading please read my guides on SIPPs and U.K pensions this will help guide you on what options for trust platforms and what available options are open in your current residency.
SIPP Protected by the US-UK Tax Treaty?
Because earnings of a US expat in the UK are subject to taxation by both nations, the two countries entered into a tax treaty that determines what income is taxable by each. Any income sources that are not covered by the treaty are generally subject to both nations’ tax rules. Although your SIPP is a retirement plan by design, it will only receive protection under the tax treaty if it is “wrapped” as a pension plan in the UK, meaning it complies with certain rules.
If the SIPP is covered by the tax treaty, you still need to determine if you want to claim protection. If you do, then contributions and gains will not be taxed until distribution. If you do not claim protection, then contributions and gains are reportable, but you may get a foreign tax credit on your US taxes. Thus, you should review your options carefully – don’t assume treaty protection will lower your tax bill.
Other SIPP Taxation Considerations for a US Expat in the UK
Most SIPPs are considered grantor trusts and require additional reporting. Review forms 3520 and 3520a to determine whether or not the additional al reporting applies to you.
Finally, note that your trust may include Passive Foreign Investment Companies, which typically require additional reporting. However, the Treasury Department issued regulations that exempt PFICs in your SIPP from these requirements, whether or not the account is under treaty protection.
Can I Transfer my U.K Pension into a SIPP if I am Still Living in the U.K.?
You can if you are presently not working for the same company are opted out of the pension scheme and not contributing. You can transfer to a U.K SIPP or International SIPP. This has the advantages of consolidation if you have multiple pensions and Investment freedom but will need to speak to IFA to weigh up the pro and cons. This gets more complicated if you have a final salary pension. Note: it is compulsory to get financial advice if your pension is worth more than 30,000 GBP.
If I am an American or Dual National & Have a U.K Pension & Moved to Another Country What Can I Do?
This depends on where you are living, you do have the option to QROPS your pension(s) if you are living in most EEA countries, U.S, Australia, N.Z, India. While, if you have moved somewhere else the option would be to move into an International SIPP.
Section 2 – Dual Citizen Tax U.S/U.K
For many Americans/U.K passport holders, they are what is coined as the phrase “Accidental Americans”. This is where you are born in the U.S or have U.S parents that qualified you for a passport. This is a loophole that many Chinese use to obtain a U.S. passport and a famous case being the current British Prime Minister Boris Johnson. If you have been unaware of this you can be termed a delinquent filler. This ultimately means that’s you are unlikely to be subject to U.S taxes, but would ultimately seek advice from U.S tax specialists. As not knowing does not hold well with the IRS.
What is Taxed?
As a U.S/U.K citizen, you are subject to tax on inheritance, capital gains and investment income.
Step one is going to the IRS, and reporting for people that have never lived in the U.S this can be done through a foreign offshore procedure. The IRS puts most of these listers in the non-willful category. This is that you did not meaningfully not file your taxes.
Once you have completed your tax filing then you are classed as a U.S citizen living abroad. This means tax exemptions and filing foreign accounts and income.
As well as this you will be subject to any double taxation treaty that the U.S/U.K have.
If you are in confusion about:
- Getting your U.S tax filing up to date
- Manage the timing of the U.S and other countries tax
- Establish wheatear you are non-willful or not
Feel free to get in touch as have partnered up with U.S/U.K tax specialist and U.S tax experts in Asia.
Frequently Asked Questions
- Can I transfer my U.K pension into a 401k/IRA account?
- No, the U.S does not allow transfers of U.K pensions into a U.S pension plan.
- Should I ROPs my Pension?
- This depends on where you want to live and how long you will be out of the U.K. A consideration is Rops U.S is limited to the options.
- Can I transfer my U.K pension into a U.K SIPP?
- You can, I have listed in a number of articles some of the main providers in the U.K and cost please see the article. Although, I would note with ISAs and U.K banks as of writing in Oct 2020 needing a U.K address to transfer this may become difficult.
- Can transfer my U.K pension now I live in the U.S to an International SIPP?
- Yes, you can, this may have some advantages in terms of fund range and currency as can opt to hold in USD. But, would see a financial about the platform charges and options.
- What is the best option for me?
- This depends on your situation and if your pension is worth more than 30,000 GBP should see a financial advisor. You will need to take it.
