Wealth Management

It is a state-ofthe-art facility designed for people who have had emergency treatment for a stroke and need a calm space to focus on recovering during the crucial following days

It is a state-of-the-art facility designed for people who have had emergency treatment for a stroke and need a calm space to focus on recovering during the crucial following days. The clinic also provides ongoing care for people once they’ve returned home, so that they can keep making progress.

The clinic is a fully accredited BUPA rehabilitation unit, and our multidisciplinary team is led by Consultant Physicians and Neurologists who hold senior positions in London Teaching Hospitals. We are more than happy to show you round the facility before you make any commitments to your stay’.

Act FAST

In the UK, someone has a stroke every 5 minutes. The FAST test can help you recognise the most common signs: Facial weakness – can the person smile? Has their mouth or eye drooped? Arm weakness – can they raise both their arms? Speech problems – can they speak clearly and understand what you’re saying?

Time to call 999 if you spot any of these signs.

When someone has a stroke, the faster they get help, the more likely they’ll survive and make a full recovery. If you think someone is having a stroke, call 999.

Dr Sageet Amlani is a Stroke Medicine Consultant at St John & St Elizabeth Hospital and the Stroke Clinic’s Lead Consultant. Call the Stroke Clinic on 020 7806 4075 Find out more at: hje.org.uk/services/stroke-unit

WEALTH MANAGEMENT

As An American, Should I Invest In A UK Occupational Pension Scheme?

Welcome to the UK! As an American having just arrived either for a long or short period of time, you might be wondering how you can leverage some of benefits your employer in the UK can offer, particularly regarding retirement planning. In speaking with clients, we are often asked whether it makes sense to contribute to a UK Occupational Pension Scheme. So, in this article we cover the basic characteristics of UK Occupational Pension Schemes and considerations for Americans living and working in the UK.

UK Occupational Pension Basics

An occupational pension scheme is an arrangement established by employers to allow you to save for retirement and are most commonly divided into two categories: Defined Benefit Pension Scheme and Defined Contribution Pension Scheme. You may sometimes encounter Hybrid schemes, but these are not discussed here.

Defined Benefit Pensions: These schemes are designed and promise to pay a specified level of benefit either on retirement, or on death, based on how long you’ve participated in the scheme and the salary you’ve earned. Most defined benefit schemes are ‘final salary schemes’ which provide by way of a pension a proportion of your income at retirement, usually dependent on the length of your membership of the pension scheme and earnings near your retirement date. Defined benefit pension schemes are becoming less and less common and you are unlikely to have one unless you’re a member of an older workplace pension or work in the public sector.

Defined Contribution Pensions: These schemes are much more common and are similar to a US 401(k) plan in that you allocate a percentage of your pay into the scheme. Enrolment into schemes is automatic under UK law, although your UK employer will give you the option to opt out and you and your employer will be required to pay a minimum amount into your scheme. How much your pension is worth at retirement will depend on how much you (and your employer) have contributed and how your investments have performed.

Contribution limits: Whether you participate in a defined benefit or defined contribution pension scheme the contribution limits are the same. Under automatic enrolment the minimum total contribution that must be added to a pension scheme is currently 8% of earnings up to £50,270 (with at least 3% coming from the employer). Many companies will structure these contributions based on base salary which can result in a higher contribution if your earnings are in excess of the minimum requirement. The standard annual allowance for the 2022/23 tax year (which includes money paid into your pension scheme every tax year by you, your employer and any third party) is currently £40,000 capped at the amount you earn if this is less. Any contributions in excess of this limit will be subject to income tax at the highest rate that you pay. Each year you are allowed to contribute up to 100% of your relevant UK earnings into a pension or the annual allowance (whichever is lower) and receive tax relief. The contribution allowance is tapered down for adjusted income over £240,000 per year. For every £2 of income over £240,000, the annual allowance is reduced by £1. For those with adjusted income of greater than £312,000, the allowance is reduced to a maximum of £4,000 per year. Unlike US retirement plans, where you can only make contributions for the current year allowance, with UK Pensions, in a current year, you can contribute your annual allowance plus any unused allowances from the previous three tax years, provided you were UK resident, were deemed to have a UK pension in place, and you have earned income to support the contribution.

The way in which the UK government provides tax relief on your contributions depends on how the contributions are being made. If your contributions are made on a net pay basis, this will lower your UK taxable earnings automatically before you pay any tax regardless of whether you are a basic rate, higher rate or additional rate taxpayer without having to claim further tax relief. However, if your contributions receive relief at source, then your pension contributions are deducted from your after-tax pay. Your pension scheme will add in basic tax relief (at 20% - so that a £100 contribution effectively costs £80). If you are a higher or additional rate taxpayer, you can reclaim further tax relief on your annual HMRC selfassessment tax return.

Distribution provisions: Currently distributions can be taken from age 55 and this will increase to age 57 by the year 2028. UK pension rules allow individuals to take a 25% tax free lump sum (on the amount of your lifetime allowance) once you’ve reached the relevant age threshold with the rest of your withdrawals subject to income tax at your marginal rate. So, for example, if you accumulate a pension worth £1m, you can withdraw £250k tax free. There are several distribution options to choose from for UK Occupational Pension Schemes. These include taking a full lump sum, a gradual flexible drawdown as and when desired, or purchasing an annuity. It is perfectly acceptable to choose any combination of these options to suit your needs.

Lifetime Allowance: The UK lifetime allowance is established by the UK government and affects the amount of money you can accumulate in and across your UK pensions before paying an additional tax charge. The current lifetime allowance threshold of £1,073,100 is frozen until April 2026 and is expected to rise in line with the Consumer Price Index (CPI) thereafter. The rate of tax you pay on pension savings above your lifetime allowance depends on how the overage is paid to you:

How much your pension is worth at retirement will depend on how much you (and your employer) have contributed and how your investments have performed

• 55% if paid as a lump sum • 25% if paid via periodic pension payments To be clear, you are only liable for the tax charge on amount in excess of the lifetime allowance when you crystallise your pension, or at age 75 (if you have not crystallised before that point).

There are differing opinions on whether to adjust your contributions to a pension in light of the lifetime allowance. Some advisors think it might make sense to check the value of your pension from time to time to ensure you are not in breach or nearing the lifetime allowance and adjust/ reduce your contributions accordingly and allocating that savings elsewhere.

However, there are situations where it might make sense to contribute irrespective of a possible breach of the lifetime allowance. For instance, perhaps your employer has a matching provision that you would otherwise have to forfeit; or, if you plan to pass on the full value of your pension as an inheritance, as the value of your pension falls outside of UK inheritance tax. Making pension contributions could also reduce your income to preserve entitlement to the personal allowance or reduce income so you do not incur the high-income child benefit tax charge.

In any event, the nuances of planning around the lifetime allowance make it important to consult a dual US/UK qualified tax adviser and Wealth Manager for guidance on your specific situation.

Considerations For Americans

The good news is that UK Occupational Pension Schemes are generally recognised and protected under the US-UK tax treaty, and as such, any underlying holdings in the pension will not be subject to Passive Foreign Investment Company (PFIC) rules. PFICs are investment funds that are domiciled outside of the US (such as the UK) which are taxed punitively by the US when held in a taxable account. So, this is one less thing you have to worry about.

You can think of UK Pension Schemes as tax-deferred vehicles much like a 401(k) or another similar plan in the US. As long as you live and work in the UK, you can also receive tax relief in the US for contributions to your UK Pension Scheme, up to the amount of tax relief that would be allowed in the US. However, because UK tax rates are generally higher than the US, many Americans working in the UK will build up excess foreign tax credits. If this is applicable you can consider forgoing tax relief on the contributions in the US and using foreign tax credits to offset the tax owed on the contributions. Should you use foreign tax credits for this purpose, you would eventually be able to withdraw the money you’ve contributed free of further US tax in the future. This would be beneficial should you decide to spend your retirement years living in the US. As with any other tax considerations, it is important to seek advice from a dual qualified US/UK tax adviser before making any decisions.

One of the things the US/UK tax treaty makes clear is that provided you distribute your pensions as periodic payments (as opposed to a single lump sum) the country of residence at the time of distribution has the primary right of taxation to tax distributions. If a pension is taken as a single lump sum, the US/UK tax treaty assigns the taxing rights to the country where the pension originates. So generally, if you live in the UK at the time you begin taking periodic distributions, the UK will have primary taxing rights. If you live in the US at time you begin taking periodic distributions, the US will have primary taxing rights. For US individuals, the US-UK treaty is not crystal clear as to whether the 25% tax free lump sum distribution afforded to UK residents is tax free in the US as well. This remains subject to interpretation and it is therefore important to seek advice from a qualified dual US/UK tax adviser.

Of course, there are other retirement planning options for Americans to consider, including potentially contributing to IRAs, Roth IRAs, or a UK personal pension, but you should seek specific advice for your situation. In some cases, it can be advantageous to incorporate a UK Occupational Pension Scheme as part of a comprehensive wealth plan to make sure you are setting yourself up for success in retirement. To explore these options within the context of your individual situation, you should seek advice from a Wealth Management team who is knowledgeable about cross border wealth planning, such as MASECO Private Wealth.

If a pension is taken as a single lump sum, the US/UK tax treaty assigns the taxing rights to the country where the pension originates

Further information please contact: Ben Lightfoot Email: Ben.lightfoot@masecopw.com

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The views expressed herein do not necessarily reflect the views of MASECO as a whole or any part thereof. All investments involve risk and may lose value. The value of your investment can go down depending upon market conditions and you may not get back the original amount invested. Your capital is always at risk. Information about potential tax benefits is based on our understanding of current tax law and practice and may be subject to change. The levels and bases of, and reliefs from, taxation is subject to change. The tax treatment depends on the individual circumstances of each person and may be subject to change in the future. MASECO Private Wealth is not a tax specialist. We recommend that anyone considering investing seeks their own tax advice.

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