Ep 70: What is English for "UK SIPP"?
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In this episode, we discuss the complexities of the UK Self-Invested Personal Pension (SIPP) for U.S. residents with UK pensions.
We explore the basics of SIPPs, their advantages, and the critical tax implications and reporting requirements for US residents who hold a SIPP.
It's important to work with specialists to navigate these complexities and ensure compliance with both UK and US regulations.
Key Takeaways
UK SIPPs are popular for consolidating old pensions.
An international SIP is a UK product for non-UK residents, since most UK providers won't accept foreign addresses.
SIPs are not treated the same as US retirement accounts.
The IRS does not classify UK SIPs as tax-advantaged.
The US-UK tax treaty can mitigate some tax issues.
Chapters
00:00 Understanding the UK SIPP
05:46 Compliance and Reporting Requirements
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Jane Mepham
This one is quite personal to me. So if you've moved to the US from the UK and you have a pension savings back home, or you're just trying to decide what to do with an old retirement funds, this is for you. And the reason I said this is personal because my spouse is from the UK. Welcome back to the International Money Café where we break down the most confusing cross-border
money topics for expats and international professionals. Today's episode is all about the UK SIPP or self-invested personal pension.
Manasa Nadig
yes, let's start with the basics. So what is a SIPP? A SIPP is simply a type of UK personal pension that gives you more control and choice over your investments compared to traditional workplace pensions. It's like a do-it-yourself pension, you pick what you invest in and
There are ways to do that, maybe mutual funds, stocks, and possibly even commercial property in some circumstances. SIPPs are very popular with folks who want to consolidate old pensions. Maybe they had employer pensions, they had self-employed pensions, and maybe get more flexibility over their UK retirement money.
Jane Mepham
So the other thing about the SIPP and I think this is the thing that we see quite a lot is people will talk about an international SIPP. And the assumption when folks reach out is they're thinking this is a SIPP that can be anywhere in the world. So let's at least break this down a little bit for you. A SIPP, S-I-P-P, is a UK regulated product. But you have certain providers who will work
with you as an expat that assumes you've moved from the UK to another country using a non-UK address. So if you're a US resident, most mainstream UK providers actually won't accept you. so expat focus specialist is what you need. And so think of an international SIPP as a SIPP based in the UK, but for those with non-UK addresses. And so you can move your
I'll just call it regular SIPP into an international SIPP because that really gives you more options in terms of investments. It helps with currency fluctuations and that sort of thing. But again, you really need a specialist to help you with this.
Manasa Nadig
yes, well said Jane, because that's where it starts getting tricky, right? So right off the bat, the SIPPs are not treated the same as IRAs or 401ks in the US. So that is not an apples to apples comparison at all, even though the SIPP is a retirement account, so to speak. The IRS will not automatically
classify the UK SIPP as a tax advantaged pension. So there are that's what makes this complex and tricky like we're talking about. Right. So this pension needs to be reported on your US return. How is it reported? And that's that's what we're going to really dig. Now, there are some things that you can't do.
which is you cannot contribute into your SIPP as a US resident. And if you did, you will not get a tax deduction on your US return. And then when you come of age to when you are, you can make qualified distributions from the SIPP, you will be taxed in the US on that distribution.
The US-UK tax treaty mitigates some of this, but most likely this pension is taxable in the US. You must also of course report the SIPP accounts on your FBAR and the FATCA if the thresholds are crossed. And most likely for our clients, both of these thresholds are crossed. And...
The other really important part about the UK SIPP is that it is considered a foreign grant or trust. So what does that mean? It is considered a foreign grant or trust because most times a SIPP is a non-employer trust. And this is what makes that reportable on forms 3520 and 3520-A
And this is where people get really caught up. it's like we always tell our listeners, you must work with a specialist who understands both the UK and the US aspects of this holding and make sure that you are in compliance. Because again, penalties for non-compliance are severe.
and non-reporting on a 3520 or 3520A would mean up to 25 % of your holdings in these SIPPs are now subject to IRS penalties.
Jane Mepham
my God, that's so high. And what's really interesting, we find every time you start working with folks, like I said, this is personal for me, they'll bring this retirement plans and in their mind, it's just like an IRA, isn't it? It's like, no, it's not. So in this bit, let me just talk about some of the common mistakes and pitfalls that we see. Really the biggest mistakes US expats make with SIPP.
Manasa Nadig
I know.
Mm-hmm.
Jane Mepham
One, and you just alluded to it, is they fail to report or you fail to report your pension accounts to the IRS or treasury. Again, assuming it's a U S it's like a U S IRA. Please, please, please don't make that mistake. And then the other one that we see all the time is where folks would say, I believe I can transfer my SIPP. can roll over my SIPP to a U S that IRA directly.
No you cannot transfer or roll over a SIPP into a U S 4 01 K or IRA. Again, remember we're talking two completely different tax systems and just because they, both of them call it retirement, the two are not the same. So you cannot do that. And then the other one is really being forced to liquidate a SIPP because a UK provider no longer accepts US residents.
which will sometimes trigger unexpected taxes or investment losses. This is where the international SIPP remember from a couple of minutes ago comes into play. And so you do have that option. And then of course, you know, ignoring the paperwork, FBAR FATCA, or any other international forms can lead to really lots in penalties. And so I think then The best way to now think about it, because this is just an intro, is maybe going to practical tips
Manasa Nadig
know. Yeah. And some of the practical tips seem kind of common sense, but you know what? We totally understand because Jane and I are constantly working in this space and we think that this should be common sense. But then you know what? It may not be so for everybody. So here is a list of practical tips. And it's very important, first of all, to understand the nature of the holding that you have. You may have a SIPP, but if you're not communicating that correctly, the professionals you're working with may not understand that, and they may think that you have a different type of a retirement account from the UK. And there are many different types of retirement accounts in the UK, and they are subject to different kinds of reporting and compliance. But of course, for today's show, we're focusing on the UK SIPP.
Find out first of all if your UK provider supports you as residents. And like Jane was saying earlier, if they don't, then there's a way for you to consolidate these pensions or look at international SIPP providers. Definitely taxation is highly fact specific. Like I said, you you may have something which is not classified as SIPP. It may be an employer pension. which may not have the same reporting requirements as a SIPP does. So to understand that and to come up with the correct classification that applies to you, you have to work with an experienced cross-border tax advisor. Also, again, cannot be said enough and cannot be reiterated enough, keep up with your annual US tax reporting, including FBAR, FATCA and the foreign grant or trust reporting.
because catching up with these non-reporting options can also be as expensive as not reporting them at all. So these are some of the practical tips, Jane. Do you think you have anything else you would like to add to that?
Jane Mepham
I, I think
Jane Mepham
I feel like we've said enough about reporting and compliance. So today this was just an intro. Like I said, it's personal. we're doing an intro, but we have a really good friend in this space who's going to go deeper into the subject with us on a future episode. And we'll let you know when we get to that, I think we've said enough for now.
Manasa Nadig
Manasa Nadig, EA (10:40.506)
Yeah, okay, cool. So,
hope this helped clarify the SIPP puzzle for UK expats in the US or those of you who have UK pensions. If you found this useful, please go on Apple or Spotify and rate us and give us five stars. We would love that. If you have specific questions, of course, head over to our website.
and will find resources where you can book a consult with Jane or I. And again, thanks for listening to the International Money Café and see you next time in two weeks. Bye for now.
Jane Mepham
great bye
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.