Overseas Pensions Tax Advice

How are overseas pensions taxed for inheritance tax purposes?

Labour’s first Budget in October 2024 announced that unused pension funds and death benefits payable at death would be brought into the scope of Inheritance Tax (“IHT”) for deaths occurring on or after 6 April 2027. This covers both UK and non-UK pension pots and means that Qualifying Recognised Overseas Pension Schemes or “QROPS” will be included within a deceased’s estate for IHT.

The other major change in the way that IHT is charged is that since April 2025, persons who have previously been UK resident for 10 of the last 20 years are regarded as “long term resident’ or “LTR” and their world-wide asserts are within the scope of IHT including from April 2027, any QROPS. If an LTR later becomes non-UK resident it can now take up to 10 years for them to fall outside the scope of IHT, depending upon the length of their previous UK residence. This means that for a person retiring abroad it will take up to 10 years for their QROPS to fall outside IHT once the new rules are in force from April 2027.

What is a QROPS?

A QROPS is a pension scheme established abroad to which someone with a UK registered pension scheme can transfer their pension pot without having to pay the unauthorised payment tax charge of 25%. The requirements to be a QROPS are quite technical and can be reviewed here.

What are the advantages of a QROPS?

A QROPS is intended to allow someone with a UK registered pension scheme moving abroad to take their UK pension pot with them. Transferring a pension pot from a UK registered pension scheme to a QROPS will avoid the unauthorised payment charge of 25% that would otherwise apply to a transfer from a UK registered pension scheme to a non-qualifying pension scheme. However, a 25% overseas transfer charge could still apply to the amount by which the transfer to the QROPS exceeds the overseas transfer allowance or “OTA”, which is normally £1,073,100, unless one of the conditions mentioned below applies.

Can I transfer my pension to a QROPS?

Yes, as long as your UK pension provider agrees and carries out the necessary checks to satisfy itself that the overseas fund is a QROPS.

What are the tax implications of transferring my pension to a QROPS?

A transfer of a UK registered pension pot to a QROPS will be liable to the overseas transfer charge of 25% unless at the time of transfer, the QROPS meets at least one of these conditions:

• The member resides in the same country or territory in which the QROPS is established;
• The QROPS is an occupational scheme or an overseas public service pension scheme, which the member joins as an employee; or
• The QROPS was established by an international organisation in order to provide benefits for its current or former employees.

Can I Transfer a QROPS to a UK Pension Scheme?

Yes, you can transfer a QROPS to a registered UK pension scheme. If a member of a QROPS decides to move back to the UK and intends to stay then they may wish to consider transferring their overseas pension pot to the UK for the following reasons: (1) Ease of administration in dealing with the pension scheme provider locally and in the same language; (2) Apart from a possible currency conversion at the point of transfer all future withdrawals can be in Sterling if desired; (3) There will be no complications with being taxed twice on pension withdrawals in the foreign country and then again in the UK with the need then to claim double tax relief; and (4) Potentially lower pension fees and more transparent charging structures compared to QROPS in overseas jurisdictions where the financial services industry is less consumer friendly and more expensive e.g., Canada.

Do you need to tell HRMC if you transfer your pension overseas?

In practice HMRC will be notified of the transfer because when you make your transfer request, your UK pension provider must supply details of the transfer to HMRC, the member and the QROPS scheme administrator.

Can HMRC investigate you if you do not transfer your pension overseas correctly?

Yes, HMRC will investigate any unauthorised transfer out of a UK registered pension scheme and you will be at risk of the unauthorised payment charge of 25%.

How to handle an HMRC investigation into overseas pensions

With great care is the obvious answer given the potential for a 25% unauthorised payment charge plus penalties. Full co-operation is advised and you would be wise to retain the services of a specialist barrister to either handle this for you or to work alongside your specialist pension financial adviser.

Frequently Asked Questions