While UK pension plans are not qualified for US tax purposes, UK pension planning can still often be effective at reducing the global tax rate in the short and longer term. Particular care needs to be taken if cumulative employee contributions are likely to exceed cumulative employer contributions and if pensions are moved or consolidated.
We usually suggest taking US tax advice in addition to UK advice, prior to making pension contributions, taking benefits or making a change to existing arrangements. Also, with a number of changes to the pension tax rules over the years, it could be beneficial to explore whether you are at the limit for maximum pension contributions to utilise higher rate relief. Utilising unused relief from earlier years could be useful as you are allowed to carry-over unused relief for three years.
Those of you who are auto enrolled into a NEST pension by their employer need to consider whether to “opt out” if the reporting requirements in the US are too much in comparison to the value of the pension. The NEST pension is a trust-based plan, so depending on the level of contributions between the employer and the employee, there could be annual reporting requirements in the US if the NEST pension is considered a foreign grantor trust.
What should I do?
You should review your existing pension arrangements to see whether you are maximising relief on pension contributions, and not exceeding their limits.
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We recommend that individuals seek professional advice where appropriate before taking any action, so please fill out the form below if you have any questions.