Tax on Pensions: Expat Pension and Pension Transfer Advice

Should you transfer your expat pension?

Are you wondering how to transfer your pension fund, or whether you should move your pension abroad?

Are you wondering whether you can amalgamate your pensions from more than one employer? Will your pension scheme be closed or wound up?

This guide to international pension transfers includes useful facts about expat pension transfers and pension advisory services.

If you have any concerns about your pension situation, our pension specialists are happy to help.

The impact of pension transfers on tax liabilities

The impact of a pension transfer on your UK tax liability depends on several factors, including the type of pension you are transferring and where you are transferring it to. Here are some key points to consider:

1. Transfer to a QROPS (Qualifying Recognised Overseas Pension Scheme)

Overseas transfer charge (OTC): If you transfer your UK pension to a QROPS outside the European Economic Area (EEA) and you are not a tax resident in the country of the receiving scheme, you may be subject to an Overseas Transfer Charge (OTC) of 25%. This is a one-off tax applied to the transfer amount.

No UK tax on transfer: in general, if the transfer is to a compliant QROPS, you won't incur any additional UK tax on the transfer itself, but be mindful of the potential OTC.

2. Tax on pension income post-transfer

Taxation in the UK: Once you move abroad, UK tax will not be applied to pension withdrawals unless you return to the UK and are considered a tax resident. However, the tax treatment depends on the country where you are a tax resident. Some countries may tax your pension income, and others like the UAE have a Double Taxation Agreement (DTA) with the UK to prevent double taxation.

Tax-free lump sum: You can still take a tax-free lump sum from your UK pension when you reach the age of 55, regardless of where you live. However, this is subject to UK tax laws at the time of withdrawal.

3. Impact on Lifetime Allowance (LTA)

The Lifetime Allowance (LTA) is the maximum amount you can accumulate in your pension pots without incurring additional tax charges. If you transfer your UK pension to another scheme (whether inside or outside the UK), it could impact your LTA.

4. Transfer of Defined Benefit Schemes

If you're transferring a defined benefit pension e.g. a final salary scheme, the transfer value is likely to be significant. Although the transfer itself isn't taxed, you may lose valuable retirement benefits, such as guaranteed income or inflation protection. It's important to assess the long-term impact, as the loss of these benefits could affect your overall tax planning.

5. Transfers to other UK pension schemes

If you transfer your pension to another UK pension scheme (like a SIPP or a defined contribution scheme), there are no immediate UK tax consequences. However, you will still be subject to UK tax laws when you access the funds in the future.

In summary, the main impact on your UK tax liability when transferring a pension is the potential 25% Overseas Transfer Charge (OTC) if you transfer to a non-EEA QROPS. There is no tax on the transfer itself, but pension withdrawals may be taxed depending on your country of residence. If you’re approaching the Lifetime Allowance or transferring a defined benefit pension, it's important to consider the long-term tax implications.

2. Understand international pension transfers and how they work

Key tax benefits and drawbacks of transferring pensions internationally

Transferring a UK pension abroad can provide significant tax advantages, but it also comes with potential risks. Understanding the benefits and drawbacks is essential before making a decision.

Benefits

Potential tax benefits – some countries offer lower or even zero tax on pension withdrawals, allowing expats to maximise their retirement income. If your country of residence has a Double Taxation Agreement (DTA) with the UK, you may only pay tax locally, avoiding UK deductions.
No UK inheritance tax – unlike UK pensions, which may be subject to Inheritance Tax (IHT) at 40%, a Qualifying Recognised Overseas Pension Scheme (QROPS) can help ensure your pension is passed to beneficiaries tax-efficiently.
Currency flexibility – UK pensions are paid in GBP, which can expose expats to exchange rate fluctuations. Transferring to a QROPS allows pensions to be held in local currency, providing greater financial stability.

Drawbacks

Overseas Transfer Charge (OTC) – a 25% tax charge applies if a pension is transferred to a QROPS outside the European Economic Area (EEA) and the pension holder does not reside in the same jurisdiction. This can significantly reduce the value of the transfer.
Local tax liabilities – while some countries like the UAE offer tax-free pension withdrawals, others impose income tax, capital gains tax, or wealth taxes on overseas pensions. Without careful planning, an expat may face unexpected tax liabilities in their new country of residence.
Loss of UK protections – UK pensions benefit from strong regulations, including Financial Services Compensation Scheme (FSCS) protection. Once transferred abroad, these protections no longer apply, increasing financial risk if the receiving scheme is mismanaged.

To ensure the best financial outcome, professional advice is essential before transferring a pension internationally.

How pension transfers affect tax-free allowances

Pension transfers can affect your tax-free allowances in various ways, depending on the type of transfer and where you move to. Here's an overview of how pension transfers might impact these allowances:

1. UK tax-free allowances

Annual allowance:

When transferring a pension, you’ll need to consider the Annual Allowance for UK pension contributions. Currently set at £60,000 (as of the 2024/25 tax year), contributions above this amount will be taxed at your marginal rate. Transfers themselves don't count towards this Annual Allowance, but if you're making contributions to a UK pension before or after the transfer, you'll need to stay within this limit to avoid extra tax charges.

Lifetime allowance:

For pensions exceeding the Lifetime Allowance (previously set at £1,073,100), a tax charge could apply when you take benefits. However, the Lifetime Allowance tax charge was abolished in the 2024/25 tax year (however, do bear in mind this is subject to legislative change and could be brought back in by any new government). If you transfer your UK pension to a QROPS, the Lifetime Allowance no longer applies, which can be a major benefit for larger pension pots.

2. Impact of transferring to a QROPS or non-UK pension scheme

UK tax-free allowances (post-transfer):

After transferring to a QROPS, you lose access to UK-specific tax-free allowances like the Personal Allowance and Annual Allowance for contributions. However, the country you move to may offer its own tax-free allowances for pension income or contributions, which could provide similar benefits depending on their tax rules. You could also incur a 25% charge on the transfer from a UK SIPP to a QROPs if you are not resident in the country the QROPs is based in.

Tax-free lump sums:

In the UK, you can generally take 25% of your pension pot as a tax-free lump sum. However, if you transfer to a non-UK pension scheme like a QROPS, you may lose the right to take a tax-free lump sum in the UK. Some countries might allow a tax-free lump sum, but this depends on their specific rules.

3. Double Taxation Agreements (DTAs)

If you’re living abroad, a Double Taxation Agreement (DTA) between the UK and your new country could affect how your pension income is taxed. DTAs often provide tax exemptions or reductions on pensions to prevent double taxation. However, you might lose access to certain UK tax-free allowances if the DTA dictates that you are taxed in your country of residence instead of the UK.

4. Impact of drawing pensions

When you start withdrawing from your pension, whether it's UK-based or transferred to a QROPS, the tax-free personal allowance for income tax is important. If you live abroad, your local tax-free personal allowance will apply to your pension income. In some cases, you might face higher taxes if large withdrawals push you above local tax thresholds.

Summary

UK pension tax-free allowances (like the 25% tax-free lump sum) may no longer apply when transferring to a QROPS.
You could lose access to the UK’s tax-free personal allowance if you live abroad, but your new country might offer similar tax benefits.
The tax treatment of your pension in your new country will depend on local laws and Double Taxation Agreements with the UK.

2. UK pension transfer guide for senior executives in Dubai

3. How UK pension taxation affects expats abroad

Transferring your pension: key tax considerations for expats

1. Tax implications

Understand how the transfer will affect your tax situation. Some countries, like the UAE, don’t tax pension income, while others may tax withdrawals. The Overseas Transfer Charge (OTC) may apply when transferring to a QROPS outside the EEA. Ensure you know the tax rules both in the UK and your new country.

2. Currency and exchange rate risks

Transferring your pension abroad could expose you to currency fluctuations. If your pension is converted to a foreign currency, shifts in exchange rates can affect the value of your pension. Consider where you’ll retire and whether the currency risk will impact your income.

3. Regulatory protections and scheme security

UK pensions are protected by the Financial Services Compensation Scheme (FSCS). Once transferred, you lose this protection, so ensure the receiving scheme is secure and well-regulated. If you plan to retire in a country with a less robust regulatory framework, the security of your funds may be a concern.

4. Future flexibility and access to funds

Check how easy it will be to access and withdraw your pension in your new country. Some pensions offer greater flexibility than others, so ensure the scheme you transfer to fits your future needs. If you plan to retire in a country with specific pension rules, ensure your transfer aligns with those regulations.

5. Impact on retirement planning and inheritance

Pension rules differ across countries, and the impact on inheritance and retirement planning vary. Consider how transferring may affect your ability to pass on assets, especially if you plan to retire in a country with different inheritance laws.

6. Where you want to retire

Your destination country plays a key role in your pension transfer decision. Some countries, like the UAE, offer tax-free pension withdrawals, making them attractive for expats. On the other hand, countries with higher taxes on pension income may impact your retirement strategy. Factor in your retirement location to ensure the transfer aligns with your long-term plans.

How different countries tax pension transfers

The tax treatment of pension transfers varies significantly from country to country, and it depends on factors such as the type of pension, the jurisdiction of the receiving scheme, and any applicable Double Taxation Agreements (DTAs) between the two countries.

UAE

The United Arab Emirates has no personal income tax, meaning that pension income, whether from a UK pension or a transferred pension to a QROPS, is not taxed locally. This can be particularly attractive for UK expats living in the UAE, as they do not face any tax on pension withdrawals. However, transferring a UK pension to a QROPS outside the European Economic Area (EEA) may incur a 25% Overseas Transfer Charge if you do not reside in the country of the receiving scheme. As the UAE does not impose income tax, expats can enjoy tax-free pension income once the funds are withdrawn, making the UAE an appealing destination for pension transfers.

Non-EU jurisdictions (e.g., Singapore)

In many non-EU countries, pension transfers are more straightforward. No tax is typically imposed on the transfer itself, but the tax treatment of pension income may vary. If you transfer to a QROPS in one of these countries, you may avoid UK taxation, but local tax laws will govern how the income is taxed once withdrawn.

European Union

Within the EU, the tax treatment of pension transfers is often favourable, as many countries have Double Taxation Agreements with the UK. Transfers to EU-based schemes typically avoid tax penalties, though some countries may impose local taxes on pension income once it’s withdrawn. For example, if you transfer your pension to a scheme in Ireland or Spain, you may still be taxed on the income but avoid any double taxation.

Canada

Canada also has a DTA with the UK, allowing pensions to be taxed only in Canada once transferred. However, pension transfers to Canada can trigger tax implications if the transfer involves cashing in or converting the pension into a lump sum. Once in Canada, pension withdrawals are taxed at the individual's marginal tax rate.

South Africa

South Africa typically taxes pension transfers from the UK only when the pension funds are accessed. There is no tax on the transfer itself, but the funds will be taxed at the South African tax rate when withdrawn. South Africa and the UK also have a DTA that can help prevent double taxation of pensions.

Australia

Australia has a DTA with the UK that can allow tax relief on pension transfers, meaning that your pension income will typically be taxed only in Australia. However, transferring UK pensions to Australian pension schemes can trigger tax penalties if certain conditions are not met. If you move your pension to a Self-Managed Super Fund (SMSF), the tax treatment will depend on the structure of the fund and the residency status of the individual.

Double taxation agreements and their impact on pension tax

A Double Taxation Agreement (DTA) is a treaty between two countries that prevents individuals from being taxed twice on the same income, including pensions.

How does the UK-UAE DTA impact pension tax?

UK Pensions are only taxed in the UK – under the UK-UAE DTA, UK pensions remain subject to UK income tax, as the UAE does not tax foreign pensions.
No personal tax in the UAE – since the UAE has no personal income tax, pension withdrawals are not taxed locally.
Some expats explore QROPS to manage currency risks and inheritance planning.

Hidden costs: Transfer fees, currency exchange, and tax withholding

When transferring your pension, there are several costs to consider, which can vary depending on the type of transfer and the specific circumstances. Here are some of the key costs to keep in mind:

1. Transfer fees

Initial transfer fees: Some pension schemes charge a fee for transferring your pension out, which could be a flat fee or a percentage of your pension pot.

Receiving scheme fees: The receiving pension scheme (such as a QROPS) may also charge fees for accepting the transfer, which can include set-up fees or ongoing administration costs.

2. Exit fees

If you're transferring from a defined benefit scheme, you might face exit fees for leaving the scheme, especially if you're transferring before reaching retirement age. These fees can be significant, especially if you transfer out early and lose certain benefits. You should always seek specialise advice before considering a defined benefit transfer.

3. Advice and administration fees

Financial advice costs: Pension transfers, especially international ones, can be complex. It's highly recommended to seek professional investment advice. Depending on the adviser, this could be a one-off fee or an ongoing charge.

Ongoing administration fees: some pension schemes charge an ongoing fee for managing the transferred pension, which can be based on a percentage of your fund value or a fixed amount. This may also apply to QROPS and other international pension schemes.

4. Tax costs

Overseas Transfer Charge: if transferring to a QROPS outside the European Economic Area (EEA) and you don't live in the country of the receiving scheme, you may be subject to an OTC, which is a 25% tax on the amount transferred.

Loss of tax-free lump sum: depending on the country you transfer to, you may lose the ability to take a tax-free lump sum. Some jurisdictions allow tax-free lump sums, but the rules vary.

5. Currency conversion costs

If you’re transferring your pension to an overseas account, currency conversion fees may apply, particularly if you are transferring to a country with a different currency. Exchange rates can fluctuate, and you might face additional costs if the transfer involves converting large sums of money.

6. Investment fund charges

Investment management fees: both the UK scheme and the receiving pension scheme may charge for managing your investments. These fees can vary based on the investment options available in the scheme.

Performance fees: some investment options, especially in international schemes, may charge a performance fee, which is a percentage of any returns above a certain threshold.

7. Potential loss of benefits

Transferring out of a UK pension scheme means losing certain protections, such as access to the FSCS in the UK. This can be a risk if the receiving scheme is not adequately regulated.

Are there tax benefits in maintaining a UK pension as an expat?

Many expats have the right to transfer their pension abroad, but only some will benefit from doing so.

If you’re a British expat with a pension in the UK you can continue to benefit from tax relief on your contributions until you’ve been tax resident abroad for five consecutive years.

There are certain exceptions to this right, and to the subsequent loss of this benefit after five tax years, but for the majority of expats, the considerations of making an international pension transfer and how to transfer your pension fund arise eventually.

How UK pensions are taxed for expats living abroad

The taxation of UK pensions for expats depends on the country of residence and whether a Double Taxation Agreement (DTA) is in place. Here’s how it works:

1. UK Taxation on pensions

UK pensions (State, workplace, and private) are usually subject to UK income tax.

However, if a DTA exists, tax may be payable only in your country of residence instead of the UK.

2. How a DTA affects taxation

Some countries allow you to claim tax relief in the UK and pay tax only in your new country.

Others require UK tax first, but you can often offset this against local tax obligations.

3. Countries with no income tax

Expats in tax-free jurisdictions (e.g., UAE) can receive UK pensions tax-free if structured correctly.

4. Transferring to a QROPS

Some expats move pensions to a QROPS to manage tax more efficiently, but this must be done carefully to avoid penalties.

The impact of tax-free lump sum withdrawals from UK pensions

Taking a tax-free lump sum from your UK pension can be an effective way to access part of your savings without incurring tax charges. You can typically withdraw 25% of your pension pot as a lump sum, with the remaining 75% subject to income tax. This can provide immediate funds for retirement, debt repayment, or other financial goals.

However, it’s important to plan carefully, as taking a lump sum may affect your overall tax liability in the future, especially if you withdraw large amounts in a single year, pushing you into a higher tax bracket.

When does it makes sense to keep a UK pension vs. transferring it?

Deciding whether to keep your UK pension or transfer it depends on various factors. Here are some key situations when it might make sense to keep your UK pension:

1. If you want to retain UK protections

UK pensions are well-regulated, and you benefit from strong protections. If you value these protections or plan to return to the UK, keeping your pension may be wise.

2. If you plan to return to the UK for retirement

If you intend to retire in the UK, keeping your pension in the UK might be the most straightforward option. You’ll be able to access it under the UK’s pension rules, and it will be subject to UK tax laws, which could be beneficial depending on your financial situation.

3. If your pension is a Defined Benefit Scheme

Defined benefit schemes often offer secure, predictable income in retirement. If you’re eligible for a guaranteed income or early retirement benefits, it may be better to leave the pension in the UK, as these benefits can’t be easily replicated by other pension schemes.

4. If you’re eligible for the UK’s tax-free lump sum

You can generally take up to 25% of your UK pension pot as a tax-free lump sum upon retirement. If this benefit is important to your retirement planning, keeping your UK pension could be beneficial, as some foreign pension schemes may not offer the same tax-free lump sum options.

5. If you’re concerned about transfer fees or loss of benefits

Transferring a UK pension, especially from a defined benefit scheme, could come with significant fees or the potential loss of valuable benefits, such as death benefits or inflation protection. If the transfer fees are high or the receiving scheme doesn’t offer the same advantages, it might be better to stay with the UK pension.

6. If you don’t meet the requirements for a QROPS

If you don’t meet the residency or other requirements for transferring to a QROPS, or if the new scheme imposes high charges or less favourable tax rules, it may make more sense to keep your UK pension.

The main tax and financial risks of an overseas pension transfer

If you’re considering your options, the most critical information to keep in mind is the following:

A transfer to a qualifying scheme can deliver benefits including potential tax mitigation for some people.

These people tend to be the exception rather than the norm.

Benefits of a pension transfer are often exaggerated by financial salespersons because they can generate large commission payments for these salespeople.

Their commission always comes from your pension.

If you’re badly advised by a financially incentivised salesperson, you may ultimately derive no benefits at all from your international pension transfer, or you may even lose benefits substantially without even being aware of this until it's too late. You'll therefore not have been enabled to make an informed choice, and the pension advisory service you used will have failed you.

Worse, if you’re badly advised by someone other than a reputable, Financial Conduct Authority pension transfer specialist, you could face a loss of up to 55% of your pension in tax charges. You may also incur other penalties and financial losses.

What 'best pension transfer advice' looks like for tax efficiency

Many countries will tax foreign pension payments, lump-sums or annuities (or all three).

It’s always wise to review your financial position when you face changes in your life. For example, when you move overseas, or when you lose the right to benefit from tax relief on pension contributions.

It’s also sensible to seek professional expat pension advice if you’re unsure about any aspect of the financial considerations you need to think about.

However, when it comes to your pension and how to transfer your pension fund, you cannot err heavily enough on the side of caution, and you should always seek expert expat pension advice from reputable pension advisory services.

Best advice is unbiased advice, because if you’re encouraged to make an unsafe decision by a financially incentivised adviser, you may discover you have made what is called an unauthorised transfer, on which HM Revenue and Customs can take a 55% tax charge.

If you’re badly advised by someone other than a pension transfer specialist, you also risk losing any safeguarded benefits (essentially: final salary type benefits) without being aware of it (if you are aware and still proceed, it may or may not be a bad choice, but at least it is your choice).

We believe professional, best advice about how to transfer a pension should not be conflicted by any potential commission payment, which is why our pension advisory services are given on a fee-only basis.

The role of tax-efficient pension structures in financial planning

Tax-efficient pension structures play a vital role in long-term high-quality financial planning by helping individuals reduce their tax liability while saving for retirement. Pensions, such as SIPPs and QROPS, offer tax relief on contributions, allowing you to invest more for the future.

Additionally, tax-free lump sums and the ability to grow your pension pot tax-deferred make them an attractive choice for many. By choosing the right pension structure, you can optimise your savings, take advantage of tax allowances, and ensure a more secure financial future with less tax burden, especially in retirement.

Why working with a regulated financial adviser is crucial

When considering pension transfers and pension tax planning, working with a regulated financial adviser in Dubai is essential. They provide expert guidance on tax implications, help you avoid costly mistakes, and ensure your transfer complies with UK regulations. Their advice ensures that your pension strategy is secure, tax-efficient, and in your best interest.

Common tax mistakes to avoid when transferring pensions

1. Ignoring the Overseas Transfer Charge

If you're transferring a UK pension to a QROPS outside the European Economic Area, and you don't meet certain residency conditions, you may be subject to the OTC of 25%. Failing to check the eligibility of the receiving scheme or your residency status can result in a substantial tax bill. Always confirm that the transfer complies with the regulations to avoid this charge.

2. Not considering the Overseas Transfer Allowance (OTA)

A new OTA was introduced on 6 April 2024, replacing the previous lifetime allowance checks. For the tax year 2025/26, the OTA is set at £1,073,100. If you exceed this amount when transferring funds from a UK pension to a QROPS, a 25% tax charge will apply to the excess. If you made an overseas transfer before 6 April 2024, the previous lifetime allowance rules may affect your allowance. For those under 75 transferring from a QROPS to a UK pension, this may result in an increased OTA. The government is still finalising details, so it’s advised to consult a regulated financial adviser if this applies to you.

3. Not understanding the drawdown implications of the new scheme

Pension schemes vary widely in terms of tax treatment. Before transferring, make sure you fully understand how the new scheme (whether a QROPS or another UK scheme) will tax your withdrawals. Some countries or schemes may apply higher tax rates depending on any DTA in place, or limit flexibility in accessing the funds. Failing to do so can result in unpleasant surprises when you start drawing on your pension.

4. Transferring a Defined Benefit pension without understanding the consequences

Transferring out of a DB pension can lead to a significant loss of guaranteed income and benefits. These schemes often offer inflation protection and survivor benefits. Make sure you fully understand the long-term financial impact and the loss of these benefits before making a transfer. If you’re transferring out of a DB scheme, it’s essential to seek independent financial advice.

5. Failing to consider the impact on tax residency

Your tax residency plays a key role in how your pension income is taxed. If you move abroad but remain a UK tax resident, you will still be liable for UK tax on your pension income. If you’re transferring your pension to a country with a DTA with the UK, ensure you understand how this agreement works and where you will be taxed on your pension income. Failing to consider your tax residency status can lead to double taxation or missed tax relief opportunities.

6. Not taking advantage of the tax-free lump sum

In the UK, you can generally take 25% of your pension pot as a tax-free lump sum at retirement. If you're transferring your pension abroad, ensure that you still take advantage of this opportunity before the transfer if you're eligible. Some countries may not offer a similar tax-free withdrawal option, so it’s important to ensure you don’t miss out on this benefit if you’re eligible.

7. Transferring without seeking professional advice

Pension transfers can be complex, especially when moving abroad or dealing with large sums. Failing to seek professional financial or tax advice is one of the biggest mistakes. A financial adviser can help you navigate the tax rules, potential penalties, and the best transfer options based on your individual circumstances, ensuring you make an informed decision.

How to ensure an adviser is legally qualified to advise on pension transfers & taxation

It's a legal requirement that a pension transfer specialist advises anyone contemplating a pension transfer if they have safeguarded benefits from a UK pension scheme worth in excess of £30,000.

The gold standard of professional financial advice giving is Chartered status from the Chartered Insurance Institute (CII), or Certified Financial Planner (CFP™) certification with the Chartered Institue for Securities & Investment (CISI) / Financial Planning Standards Board (FPSB).

This is a gauge of competency and expertise in financial planning, and ensures ethical practice, expert advice and a transparent service.

When seeking international pension transfer advice, this is the minimum requirement you should look for in a financial planning organisation or pension advisory service.

We are one of very few Chartered financial planning firm in the international financial marketplace. We encourage you to check our status on the CII’s own website as part of your due diligence.

Many of our expat pension advisory services experts also each have individual Chartered status from the CII, or CFP™ status with the CISI. This means our advisers have integrity, your interests at the heart of all advice they offer, the highest level of qualifications, and extensive professional experience in financial planning.

This is the minimum standard you should seek when choosing an adviser to help you with expat pension advice.

Why you need to understand QROPS UK tax law & qualification criteria

Because at least 55% of your international pension transfer will rely on you knowing what makes an overseas pension scheme qualifying and recognised.

What is QROPS (Qualifying Recognised Overseas Pension Scheme)?

A Qualifying Recognised Overseas Pension Scheme (QROPS) allows expats to transfer their UK pension abroad into a qualifying scheme. They are designed to meet the rules set out by HMRC regarding pension transfers. QROPS can offer tax-efficiency advantages, investment flexibility, and the ability to withdraw in different currencies.

However, you might be subject to the Overseas Transfer Charge (OTC) on your transfer if you don't meet the required residency conditions. Potential advantages or disadvantage are all dependent on the type of pension scheme you currently have and any benefits you might be sacrificing by choosing to transfer. Your existing UK pension or pensions will likely either be a Defined Contribution scheme or Defined Benefit scheme. A qualified pension transfer specialist can help you with understanding what may be best for you.

How QROPS transfers affect your tax obligations

Transferring your UK pension to a QROPS can have significant tax implications. In some cases, a 25% Overseas Transfer Charge (OTC) may apply if the QROPS is outside the European Economic Area (EEA) and you don’t live in the same country.

However, transfers to a QROPS in your country of residence are often tax-free. Local tax laws will determine how your pension is taxed when you start drawing income. Some jurisdictions offer tax advantages, while others may have stricter rules. It’s essential to seek professional advice to ensure compliance and maximise any potential tax benefits.

Penalties for transferring to non-compliant pension schemes

If you transfer your UK pension to a non-compliant pension scheme (one that is not a QROPS), you could face significant penalties from HMRC. These include:

1. Unauthorised payment charge – 40%

HMRC treats transfers to non-QROPS schemes as unauthorised payments, leading to a tax charge of 40% on the transferred amount.

2. Unauthorised payment surcharge – 15%

If the unauthorised transfer exceeds 25% of your pension fund, an additional 15% surcharge applies, bringing the total penalty up to 55%.

3. Scheme sanction charge – up to 40%

The receiving scheme may also face a penalty of up to 40% for accepting an unauthorised transfer.

4. Potential loss of pension benefits

If your pension is transferred to an unregulated or fraudulent scheme, you risk losing your entire pension savings.

To avoid these penalties, always ensure your chosen scheme is listed on HMRC’s ROPS list and seek professional financial advice before transferring.

Tax recognition conditions for pension transfers

The qualifying recognised overseas pension scheme must be recognised for tax purposes in the jurisdiction where it’s established.

It must also meet the following conditions:

The scheme has to be open to people living in that jurisdiction
The jurisdiction gives tax relief on member contributions, and payments out will be taxed or vice versa
The QROPS is recognised by or registered with the jurisdiction’s tax authority

LEARN MORE ABOUT PENSIONS »

A financial planning professional explaining tax recognition conditions at AES International.

Regulated pension scheme conditions & tax compliance

If there is a pensions regulatory body in the jurisdiction where the scheme is set up, the pension scheme must be regulated by that body.

If there is no regulatory body, the scheme must either:

be set up in an EU member state, Liechtenstein, Iceland or Norway; or
use at least 70% of transferred funds from the UK to provide a pension for life, which cannot normally be paid before age 55.

Recognised overseas pension scheme conditions & tax obligations

The same tax rules on benefits have to be applicable to tax residents and non-residents.

The scheme must meet at least one of the following conditions:

The scheme is set up in an EU member state, Liechtenstein, Iceland or Norway
The scheme is set up in a jurisdiction (other than New Zealand), where the UK has a double taxation agreement with that jurisdiction that contains exchange of information and non- discrimination provisions
The scheme is open to those resident in the jurisdiction where it is set up and at least 70% of the transferred funds will be used to provide a pension for life, which normally cannot start earlier than age 55

Stuart Ritchie, Chartered Financial Planner at AES International talks about recognised overseas pension scheme conditions.

HMRC’s list of QROPS

HM Revenue and Customs has a list of some recognised overseas pension schemes on its website, about which it writes:

“HMRC can’t guarantee these are ROPS [recognised overseas pension schemes] or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings.”

In other words, the list is of little or no value. Don’t rely on it as evidence that your proposed scheme will qualify.

LEARN MORE ABOUT PENSION TRANSFERS

Pension transfer benefits & tax considerations at a glance

The following benefits can be really good, but not for everybody.

If you’ve been told any different, you’ve been told wrong. Overseas transfers are not for everybody. Whether an overseas transfer is beneficial is very much dependent on your circumstances:

Transfers to qualifying overseas pension schemes (QROPS) may offer tax advantages for expats, depending on your country of residence
Tax-free growth beyond the UK’s lifetime allowance limit
Pension income may be taxed at a low or zero tax rate depending on the country of residence and any relevant double taxation agreements
No income tax charge on death after age 75
Exchange rate and currency fluctuation risk mitigation
Wide investment choice (like a SIPP in the UK)
Portable, flexible and allows for the consolidation of multiple pensions (like a SIPP in the UK)
Potential of increasing a spouse’s pension (more than a UK defined benefit scheme offers)
Pension income drawdown can potentially be planned to mitigate tax burdens (like a SIPP in the UK)
Valuable for anyone attempting to shed the UK as their domicile of origin
Some pension types allow you to pass unused funds to your heirs more easily and with potentially favorable tax treatment

Know and avoid the following international pension transfer risks:

1. Salespersons, who often misleadingly call themselves IFAs or financial advisers, are often financially incentivised to win your pension transfer business.

They are paid large commissions when you move your pension overseas.

Such individuals are acting in their own best interests instead of yours.

And their commission payment comes from your pension.

One of the only ways to avoid this risk is to take advice or a second opinion from a Chartered financial planner, certified by the Chartered Insurance Institute (CII).

Such an individual will be bound by the CII’s code of ethics, which means they have to:

- Comply with all relevant laws and regulations.
- Act with the highest ethical standards and integrity.
- Act in the best interests of each client.
- Provide a high standard of service.

The CII maintains a list of Chartered financial planning firms.

2. HM Revenue and Customs may delist a QROPS, or an entire jurisdiction’s QROPS.

It can do this if it determines a scheme doesn’t comply with UK tax regulations, or because of tax or pension regulation changes in the overseas jurisdiction.

Any transfers already made could be treated unauthorised payments, which could incur a 55% tax charge. Other charges may also apply.

You have to understand the detailed qualification criteria set by UK tax law referred to above, and ensure any scheme and jurisdiction you’re considering complies.

The onus is on you to do your due diligence.

3. When you transfer your pension to a QROPS you become responsible for critical pension investment decisions.

If you look to your adviser for assistance, and that adviser is actually one of the afore-referenced financially incentivised salespersons, you may be recommended funds that bring the best returns for them, not the best results for your pension.

If you make a transfer and then seek investment advice for your pension assets, the foregoing advice about choosing an adviser stands.

Furthermore, make sure your chosen adviser is authorised by a proper financial authority, and that redress procedures are available if anything goes wrong.

4. You will of course lose any guaranteed, minimum or defined benefits, which are collectively called safeguarded benefits, from your UK scheme if you transfer.

As a result, there is a risk that your new pension may not provide at least the overall financial benefits that the UK safeguarded benefits would have delivered.

Ensure you are transparently informed of everything that you will lose if you transfer, and how that will impact upon you.

5. Your UK safeguarded benefits are usually safeguarded for life, and often for the life of your partner as well, if they outlive you.

So, there is a risk that even if you think a transfer will give you greater benefits, the reality is you or your partner may outlive the benefits. I.e., you may run out of funds.

With this in mind, take another long hard look at your options and potential benefits.

It may come down to you having to work out how long you might realistically live for, and then working out, on an equally realistic basis, how much you can take from your QROPS if it is to last.

6. The 2017 Spring Budget brought certain significant changes to QROPS legislation, including the introduction of a 25% Overseas Transfer Charge...

Read our technical briefing to understand how this may affect you - or talk to us for clarification based on your personal circumstances.

Remember:

Transfers of safeguarded benefits, if valued at over £30,000, have to be signed off by a pension transfer specialist: the trustees of a safeguarded scheme will not permit the transfer without the sign-off.

These pension transfer professionals will be able to tell you whether you will lose benefits by transferring, and what benefits you would forgo.

The truth about avoiding tax by transferring a pension – what you need to know

Many expats are sold a pension transfer on false promises about legitimate tax avoidance.

It is true that depending on where you move your pension to, where you’re tax resident now and where you’re tax resident when you retire, you may be able to reduce your tax liabilities on your pension or pension income.

But you have to remember that the scheme your pension is transferred to has to comply with the UK tax law as mentioned above.

Theoretically, it's possible for a scheme to comply with these rules and be in a low or even no tax jurisdiction, but also remember that where you’re tax resident will have a bearing on whether you pay tax when you receive your lump sum and/or pension income.

Don’t automatically believe the tax reduction or deferral hype - seek personalised advice to be properly informed.

Should I transfer my pension? Understanding the tax consequences

If you just want to know what you should do, and you don’t want to read the foregoing information at full length, get professional advice.

You need a comprehensive and specialist appraisal of your pension, your personal financial and tax position, and your retirement plans.

With comprehensive and accessible information and advice from a chartered financial planner, who is a pension transfer specialist, you can make the right decision.

Access that help and advice now – you will gain access to pension advisory services, and Financial Conduct Authority retirement planning and pension transfer specialists.

Ready to start the conversation?

We'll call, learn about you and help you decide if we're a good fit. It's that easy.

Tax on Pension: FAQs

Can I transfer my pension to another person / provider?

Many people with benefits in a UK pension scheme can transfer to another UK scheme. Most expats have similar options to transfer pensions overseas into a qualifying recognised overseas pension scheme, or QROPS.

QROPS are sometimes referred to as ROPS, which simply stands for recognised overseas pension schemes.

Such transfers, if done correctly, are not taxed at the point of transfer.

It’s important to note that not all qualifying overseas pension schemes accept transfers in, and not all expats are eligible to transfer their pension to a qualifying recognised overseas pension scheme.

Whether you’re able to transfer your pension needs to be determined with professional advice.

Does HM Revenue and Customs approve QROPS and international pension transfers?

In order to qualify for international pension transfers, an overseas scheme has to meet specific criteria determined by UK tax law.

The scheme also has to tell HM Revenue and Customs (HMRC) that it qualifies.

However, HMRC does not "approve" any schemes, even though it provides a list of QROPS on its website, and HMRC does not carry out any checks that a recognised overseas pension scheme qualifies.

If an overseas scheme meets all UK tax law requirements, and you are either:

Transferring to a scheme based in the EEA while you are tax-resident in an EEA state (e.g., transferring to Malta while resident in Spain) or;
Transferring to a scheme in a different country in which you are also tax-resident (e.g., transferring to a New Zealand scheme while resident in New Zealand) or;
Transferring to a public service scheme, international scheme, or occupational pension scheme no matter where the scheme and member are located (e.g., a member of the Shell Pension Scheme sent to Ecuador and joining the Shell Pension Scheme there is not affected, assuming that the Shell Ecuador Pension Scheme is a QROPS)...

...then a transfer to it should not incur UK taxation on the transfer itself.

However, as these rules have newly come into effect, accompanied by other changes to QROPS, including the application of a 25% Overseas Transfer Charge for other transfers, we strongly recommend you refer to our technical note on this point, and contact us to discuss how these changes may affect your choices.

If at any point in time HMRC discovers a recognised overseas pension scheme does not actually meet the qualification requirements, transfers that have been made to that scheme may incur up to a 55% unauthorised transfer tax charge.

Are there any ‘safe’ jurisdictions for QROPS?

Any jurisdiction that fulfils the above UK tax law criteria relating to QROPS and pensions could conceivably be considered for a pension transfer to a scheme in that jurisdiction. However, there are other considerations you need to think about too.

The jurisdiction most appropriate for your transfer, if you decide to transfer, will depend on many things including your jurisdiction of tax residence, where you plan to retire and any relevant double tax agreements (DTA).

Popular jurisdictions for pension transfer business currently include Malta and Gibraltar, but there are many other jurisdictions to choose from as well.

Malta, and to a lesser extent Gibraltar are popular largely because of their highly regulated, low tax environments, and in the case of Malta their many DTAs.

However, neither may be appropriate for you, and there are many other choices.

What is the maximum tax free cash from a pension?

You can typically take 25% of your pension pot as a tax-free lump sum when you retire. This is known as the Pension Commencement Lump Sum (PCLS).

What is the maximum I can pay into my pension?

The maximum you can contribute to your pension each year is generally £40,000, known as the annual allowance. If your income exceeds £200,000, this may be reduced. Contributions over this limit may incur tax charges.

Can I cash in 100% of my pension?

Yes, you can cash in 100% of your pension, but you will face tax consequences. Typically, you can take 25% of your pension pot as a tax-free lump sum, and the remaining 75% will be taxed as income at your marginal rate.

What is the maximum amount of money you can give tax-free?

You can gift up to £3,000 per year tax-free, and any unused portion can be carried over to the next year. Additionally, you can give tax-free gifts to individuals as part of your annual exemption, and larger gifts may be exempt from inheritance tax if you live for at least seven years after making them.

When can I withdraw my pension?

You can start withdrawing from your pension at the age of 55 (increasing to 57 in 2028). Depending on the type of pension, you can take a lump sum, income, or a combination of both.

What is the tax limit for cash withdrawal?

When withdrawing cash from your pension, 25% of the amount can be taken tax-free. The remaining 75% is taxed at your income tax rate, which depends on how much you withdraw in a given tax year.

Understanding tax on pensions What expats need to know

A comprehensive analysis of pension taxation for expats