What should I do with my UK pension when I retire overseas?

Key takeaways

• Moving abroad for retirement whilst holding a UK pension brings a range of tax and administrative considerations that require careful planning. The decision of whether to transfer a pension overseas or retain it in the UK carries significant implications for tax treatment, investment flexibility and estate planning. With rule changes affecting inheritance tax and evolving international pension regulations, individuals contemplating retirement abroad face some complex choices.
• The treatment of UK pensions for those living overseas has evolved in recent years. The recent announcement that unused UK pensions will be brought into the UK inheritance tax regime from 6 April 2027, regardless of where the individual lives, has added urgency to pension planning for those considering a move abroad. Anyone with plans to move abroad for retirement should be considering the new rules sooner rather than later.
• Understanding the options available and the tax consequences of each path is essential for anyone holding UK pension wealth whilst planning an overseas retirement. The choice between transferring a pension abroad or keeping it in the UK depends on individual circumstances, the destination country, the specific pension arrangement held, and long-term plans. Personalised professional advice is indispensable.

Why transfer a UK pension overseas?

Transferring a UK pension to an overseas arrangement can offer several advantages for those retiring abroad. Managing pension affairs becomes considerably easier when the pension is held in the country of residence, allowing withdrawals in local currency which reduces foreign exchange risk and associated conversion costs. Some overseas jurisdictions may offer investment options not readily available through UK pension arrangements, potentially broadening portfolio choices.

Estate planning considerations have become particularly relevant following recent legislative changes. From 6 April 2027, any unused UK pensions will be brought into the UK inheritance tax regime regardless of where the pension holder lives. For individuals with substantial pension wealth, transferring to certain overseas arrangements may offer more favourable estate planning outcomes, though this depends heavily on the rules governing the receiving scheme and the individual's country of residence.

However, transfers from UK pensions to overseas schemes are not straightforward transactions. A transfer to an overseas pension scheme that is not a qualifying recognised overseas pension scheme, known as a QROPS, may be refused by the UK pension provider. Where such a transfer does proceed, the individual may face a UK tax charge of at least 40% on the transfer value.

Tax charges on overseas transfers

Even transfers to an approved QROPS can trigger a 25% tax charge unless specific exemptions apply. The primary exemption applies where the individual and the QROPS are resident in the same country at the time of transfer, and the value transferred does not exceed the individual's available overseas transfer allowance, usually £1,073,100. A higher allowance may apply where the individual holds protected allowances. The alternative exemption applies where the QROPS is provided by the individual's employer.

Notably, the automatic exemption that previously applied to European Economic Area and Gibraltar based QROPS was withdrawn in October 2024, narrowing the circumstances in which transfers can proceed without immediate tax consequences. Where an exemption does apply, it remains conditional for five full UK tax years after the transfer. An individual who moves away from the country where the QROPS is established to a different country within this five-year window will have to pay the 25% tax charge on the transfer.

Keeping a UK pension whilst living abroad

Many individuals opt to retain their UK pension even after moving overseas. This approach avoids the potential UK tax charges associated with transfers, along with the administrative complexity and costs involved. Existing pension arrangements may contain valuable guarantees, particularly for defined benefit pensions which offer inflation-linked retirement income. Certain arrangements may also provide more favourable retirement options than those available overseas, making retention the more prudent choice.

Maintaining a UK pension preserves flexibility for those who may return to the UK or subsequently move to another country. The UK Self-Invested Personal Pension (SIPP) market remains broad and competitive, offering investment choice and established regulatory protections. When an individual begins drawing a UK pension after becoming non-UK resident, up to 25% of the pension can typically be paid as a tax-free lump sum in the UK, subject to the individual's available lump sum allowance, currently £268,275.

Regular pension income payments and amounts exceeding the available lump sum allowance may be taxable in the UK depending on the double tax treaty between the UK and the individual's country of residence. In most cases, the individual's country of residence will have the primary taxing rights over regular pension income payments. However, where the entire pension pot is withdrawn as a single lump sum, primary taxing rights often shift to the country in which the pension scheme is established, though this depends on the specific double tax treaty between the two countries.

Navigating double taxation

Double taxation can arise when an individual moves abroad and begins receiving pension income from a UK pension. This may occur where the individual's country of residence taxes the pension income whilst UK income tax is also deducted at source from the pension payments. UK pension providers will usually deduct UK income tax from regular pension payments through PAYE as a default position.

Where the relevant double tax treaty provides that the pension is taxable only in the country of residence, the individual may apply to HMRC for a No Tax (NT) code before pension payments begin to ensure that UK income tax is not deducted at source. If this code is not obtained before payments commence, UK tax may continue to be deducted even where the treaty provides that the pension is taxable only in the country of residence. As the process of obtaining a No Tax code can be lengthy, individuals may experience a temporary period of double taxation until the UK tax withheld is refunded by HMRC.

Treatment of lump sum withdrawals can differ significantly from regular pension income under double taxation agreements. A lump sum withdrawal may qualify for favourable or tax-free treatment in the UK but be fully or partly taxable in the new country. Many treaties also allow the UK to continue taxing government service pensions, adding further complexity for those with public sector pension entitlements.

A UK pension cannot be transferred on a tax-recognised basis to any overseas pension arrangement selected by the individual. The receiving arrangement must ordinarily qualify as a QROPS, and both the UK provider and the overseas scheme must be willing and legally able to complete the transfer. 

Practical steps for a UK pension holder moving abroad:

1. Identify each pension arrangement - An individual should establish whether each pension is a SIPP, workplace defined-contribution pension, defined-benefit scheme, public-sector pension or state pension.
2. Obtain current valuations and benefit statements - Obtain current transfer values and details of any guarantees, protected pension ages, protected tax-free cash entitlements and other safeguarded benefits.
3. Check the destination country’s tax rules - Establish how the new country taxes pension contributions, investment growth, regular pension income, lump-sum withdrawals and death benefits.
4. Review the relevant double taxation agreement - The pension, lump-sum and government-service provisions should be reviewed separately, as different rules may apply to each category.
5. Compare retaining the UK pension with transferring to a QROPS - The comparison should consider taxation, investment options, currency exposure, regulation, costs, succession treatment and the possibility that the individual may return to the UK or move to another country.
6. Confirm whether the proposed overseas scheme is genuinely a QROPS - Check HMRC’s published list, obtain evidence from the overseas scheme manager and confirm that the existing UK provider is willing to make the transfer.
7. Calculate any overseas transfer charge - It will be necessary to determine whether an exemption applies, how much overseas transfer allowance remains and whether a future change of residence could trigger a charge.
8. Contact the existing UK provider before leaving - The individual should confirm whether the provider will continue servicing a non-UK resident and whether it will restrict contributions, investments, drawdown arrangements or withdrawals.
9. Consider the timing of withdrawals carefully - Taking a lump sum or establishing drawdown shortly before or after moving can produce very different tax results. The individual’s residence position, treaty entitlement and the destination country’s domestic rules should be reviewed before benefits are taken.
10. Arrange any necessary HMRC treaty claim - Where appropriate, the individual should apply for an NT tax code or a repayment of UK PAYE and retain evidence of their overseas tax residence.
11. Review future pension contributions - UK tax relief on personal contributions may become restricted after the individual leaves the UK. Limited relief may sometimes remain available temporarily, but eligibility should be confirmed based on the individual’s circumstances.
12. Update administrative and estate-planning documents - The individual should notify pension providers of their new address and tax residence, update expression-of-wish forms, review their wills and powers of attorney, and consider how the pension will be treated on death in both countries.
13. Keep complete records - Transfer documents, residence certificates, PAYE statements, pension withdrawal records and overseas tax returns should be retained to support future treaty or foreign tax credit claims.

Glossary

QROPS: A qualifying recognised overseas pension scheme is an overseas pension arrangement that meets specific UK requirements, allowing transfers from UK registered pension schemes without triggering unauthorised payment charges.

Double Tax Treaty: A bilateral agreement between two countries that determines which country has the right to tax specific types of income, designed to prevent the same income being taxed twice.

Overseas Transfer Allowance: The maximum value that can be transferred from a UK pension to a QROPS without incurring the overseas transfer charge.

Lump Sum Allowance: The maximum amount of tax-free cash that can be taken from pension savings.

No Tax Code: An HMRC tax code that instructs a UK pension provider not to deduct UK income tax at source from pension payments.