Wednesday 28th August 2013

Protecting your British pension while living overseas

In recent research completed by, the United States the Topped the List of Retirement Destinations for British Expats.

Although the immigration rules that determine British citizens’ rights to live in the United States are relatively strict, it is clear that more and more Brits are heading across the Atlantic in search of the American Dream. Once there, former UK residents can expect to find a favorable cost of living, low rental costs and, in some areas of the US, better weather.

While retirement in the United States clearly appeals to many expats, it is crucial that British retirees who head overseas are aware that, by moving outside of the UK, they may forgo many of the social security benefits that they take for granted at home. For example, things such as healthcare and other welfare benefits may no longer be available to them, even on their return home. As such, thorough research of all the facts is crucial.

One of the biggest advantages that are available to British expats who retire in the United States is that those who claim a state pension while living in America can benefit from pension payments that rise in accordance with inflation. Unlike British pensioners who live in Australia and Canada, whose pensions are frozen from the moment they first draw them, Brits living in the USA can claim pension payments at the same rate as their peers in the UK. In addition to that, while calculating the value of pension payments, the UK government also takes into account any pension contributions that UK citizens have made to the American government while living in the US.

Expatriates who wish to claim relief on their expat pension can do so by completing the US Individual Form and the IRS 8802, both of which must be returned to the HMRC.

One method through which expat pensioners who live in the United States can gain additional benefits on their UK pensions is through transferring them to a Qualifying Recognized Overseas Pension Scheme (QROPS). This will prevent income from pension funds being subject to UK income tax. Furthermore, it will allow pensioners to manage their funds in the local currency. There is also the chance that capital gains and inheritance tax can be avoided, although this will be subject to the offshore tax planning measures you take.

At present there are no USA QROPS schemes approved by HMRC. However, UK pensioners who live in the US and who want to take advantage of the QROPS offering can do so by utilizing an alternative jurisdiction. However, if you decide to pursue this course of action it is crucial that you seek sound financial advice, as moving your pension from the United Kingdom to an overseas QROPS may jeopardizing benefits that are available to you under the UK/US residency tax treaty.

Please note that this article is intended to provide high-level information only and should not be used as a substitute for seeking expert financial advice from trained professionals.

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