Tax on UK Pension Income Living Abroad

Introduction

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Retiring abroad is a dream for many UK nationals—sunshine, a lower cost of living, and a change of scenery all beckon. But one question looms large for retirees before packing their bags: What is the tax on UK pension income while living abroad? Understanding your obligations can help you avoid costly mistakes and ensure a smooth financial transition into overseas retirement.


This article provides a comprehensive overview of the UK tax position on pension income if you move abroad, with a focus on non-residency rules, SIPP taxation, and double taxation treaties. Whether you're already retired or planning your move, here's what you need to know.

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📌 Understanding UK Residency and Tax Status

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To determine the tax on UK pension income living abroad, the first step is establishing whether you're a UK tax resident or non-resident.

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HMRC uses the Statutory Residence Test (SRT) to determine your residency status. The SRT considers:


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• The number of days you spend in the UK
• Where you work
• Whether you have a home in the UK or a home overseas
• The number of ties you have to the UK


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Once you're classed as non-resident for tax purposes, HMRCs right to tax your incomes are limited to UK sourced incomes only.

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💷 General Rule: UK Pension Tax If Non-Resident

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If you're non-resident, the general rule is UK-source pension income remains taxable in the UK. This includes:


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• State Pension
• Defined Benefit (Final Salary) pensions
• Defined Contribution pensions (such as SIPPs)
• Annuity income


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Note that if your new country of residence has a Double Taxation Agreement (DTA) with the UK, it may be possible to exempt the UK from taxing the pension income under international tax law.

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🛂 Double Taxation Agreements (DTAs)

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DTAs are crucial in managing the UK pension tax if non-resident. The UK has treaties with over 130 countries, and many of these include provisions for pension income. Take the following steps to avoid double taxation:


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1. Check if your country has a DTA with the UK here

2. Check how you can obtain relief from UK tax such as taking a one-off lump sum v regular amounts

3. Complete the HMRC Double Taxation Relief form

4. Submit it via the tax authority in your country


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Once approved, HMRC will stop taxing your pension at source and refund tax already paid.

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📈 SIPP Pension Abroad Tax Planning Tips

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Since SIPPs offer flexibility in income drawdown and investment control, many expats find them ideal. However, the SIPP pension abroad tax treatment varies by jurisdiction:


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🔸 Avoid large withdrawals in one go unless tax-free in your new country
🔸 Use drawdown carefully to keep income within lower tax bands in your new country
🔸 Consult with an international tax adviser to avoid triggering higher taxes or penalties

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Some expats consider QROPS (Qualifying Recognised Overseas Pension Schemes) to transfer their SIPP abroad. While QROPS offer tax benefits in some countries, an Overseas Transfer Charge (OTC) of 25% may apply, so always seek tailored advice.

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✅ Conclusion

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Living abroad in retirement comes with many rewards, but it's vital to understand the tax on UK pension income while living abroad. Whether it's your State Pension, a defined benefit scheme, or a SIPP, your tax treatment will depend on:

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- Your residency status

- The presence of a Double Taxation Agreement

- The type of pension you hold

- How you withdraw from your pension (lump sum v regular)

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For most retirees, the best approach is to consult with a UK-qualified international tax adviser who can assess your personal situation and help minimize tax liabilities.