How to Protect Your British Pension When Living in the USA
In recent research completed by Globalvisas.com, the United States 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 better weather in some areas of the US.
While retirement in the United States clearly appeals to many expats, British retirees who head overseas must be aware that they may forgo many of the social security benefits that they take for granted at home by moving outside of the UK. For example, 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 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 by 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 considers any pension contributions that UK citizens have made to the American government while living in the US.
One method through which expat pensioners who live in the United States can benefit from their UK pensions is by transferring them to a Qualifying Recognized Overseas Pension Scheme (QROPS). This will prevent income from pension funds from 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 utilize 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.