According to an article published this week by IFC Review, those with UK pensions hoping to retire in the United States may now have a legitimate option to avoid their pension benefits being swallowed up by the IRS. The relief comes by way of Malta and a new double taxation agreement between Malta and the United States. The agreement allows anyone with a green card or permanent residence affiliation here to transfer their UK pension into a Malta based Qualifying Recognised Overseas Pension Schemes (QROPS).
IFC reports that Maltese pension providers have seen their business surge between 130 and 190 percent based on the new double taxation agreement.
Until now, it was practically impossible to bring a UK pension into the United States without the majority being taxed by the IRS. Unfortunately, it didn’t matter if the entire pension was transferred or just the drawdowns post retirement. The IRS says the benefits are taxable.
The new double taxation agreement allows anyone with a US green card or permanent residence affiliation here to transfer their UK-based pension into a QROPS based in Malta and avoid IRS taxation of their benefits.
As I write this post in Key West, hundreds of Canadians and Europeans continue to make Florida a retirement destination. Until now, that was an iffy proposition for folks from the U.K. IFC claims that recognizing the difficulty UK pensioners faced coming to the U.S. to retire, “a group of providers came together to work out a solution, and created a compliant QROPS based out of Malta which ticks every box the IRS has. With it Double Taxation Treaty in place, Malta had the advantage, but when put together with its economic stability, the standard of financial regulation being extremely high and its EU membership, there was really nowhere else to look.”
The pension providers in Malta claim their QROPS offer British pensioners retiring to the United States many benefits including investment growth not subject to US taxation, avoidance of the UK inheritance tax and a 30% lump sum option available upon retirement. Although we have not independently verified these claims, QROPS are available for UK pensioners retiring in the US, US nationals who hold a UK pension and those who hold a US green card and have a UK pension.
We strongly advise anyone contemplating moving their pension to Malta to consult with both an experienced financial advisor as well as a US tax lawyer with strong foreign reporting experience.
Mahany & Ertl is a boutique tax law firm concentrating in foreign reporting. We have worked with taxpayers from around the world and with financial advisors worldwide. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries are kept strictly confidential.