For many British expats, retirement abroad offers the opportunity for a better lifestyle and improved tax efficiency. However, one question often remains: what happens to your UK pension and its inheritance tax implications once you move abroad?

In this guide, we break down UK Inheritance Tax (IHT) on pensions for British expats. Whether you live in France, Spain, Australia, or Thailand, understanding your exposure to IHT is crucial for smart financial planning. Recent government budgets have introduced significant changes in UK pension and inheritance tax policy, including the announcement that from April 2027, UK-registered pension funds (such as a SIPP or International SIPP) will be included in the value of an individual’s estate for IHT purposes, and may be taxed at the standard 40% UK IHT rate. These significant changes were highlighted in the most recent autumn budget, where the budget introduced new legislation affecting expats and pension holders. It is essential to seek advice from qualified professionals to navigate these complex changes.

Introduction to UK Expats and Inheritance Tax

For UK expats, managing pension savings and planning for the future has always required careful attention to inheritance tax rules. Traditionally, UK pensions were excluded from UK inheritance tax (IHT) calculations, making them a valuable tool for estate planning and wealth preservation. However, a major shift is on the horizon: from April 2027, UK-registered pension funds will be included in the value of an individual’s estate for IHT purposes, and may be taxed at the standard 40% UK IHT rate.

This significant change affects not only UK residents but also UK expats living abroad who hold UK pensions. The new rules mean that your pension funds could now be subject to inheritance tax, potentially reducing the financial legacy you leave behind. As a result, it is more important than ever for UK expats to review their estate planning strategies and understand how these changes could impact their pension wealth.

Whether you are already living overseas or planning to retire abroad, staying informed about the latest IHT rules is essential. By understanding how UK inheritance tax applies to your pension and taking proactive steps, you can help protect your assets and ensure your loved ones benefit from your careful planning.

Do I Have to Pay UK Inheritance Tax If I Live Abroad?

Yes, in many cases you do. UK Inheritance Tax can still apply even if you are no longer living in the UK. This is because IHT is based on domicile, not just residency. If you are considered UK domiciled, HMRC may still claim inheritance tax on your estate — including UK pensions.

That said, not all pensions are treated equally. The IHT liability can vary significantly depending on the individual circumstances of the pension holder. The type of pension, the pension holder’s age at death, and whether the pension holder accessed the pension all play a role in determining whether your beneficiaries face an IHT bill.

What Is the UK IHT Threshold?

The standard nil rate band is £325,000. The nil rate band and other exemptions may be updated in each tax year, so it is important to check the current figures. Anything above this is generally taxed at 40%. There may also be a residence nil rate band of £175,000 if passing the family home to direct descendants. However, pensions are often treated differently to other assets.

Are Pensions Subject to Inheritance Tax?

Most UK pensions are outside your estate for IHT purposes — but this is not a blanket rule. It depends on the type of pension and whether benefits have been crystallised (accessed).

Defined Benefit pensions rarely have a lump sum that forms part of an estate, but a Defined Contribution pension, such as a SIPP, may be passed on free of tax if you die before age 75. After 75, income tax may apply instead of IHT. However, from April 2027, unused pension funds will be included in the individual’s estate for inheritance tax purposes, meaning the value of the pension pot will be assessed for IHT.

However, if you transfer your pension or make large withdrawals just before death, HMRC can argue that you have tried to reduce your IHT liability. This is known as “gifting with reservation of benefit” and can trigger a tax charge.

How Does Domicile Affect My UK IHT Exposure?

If you retain your UK domicile, your worldwide estate, including pensions and foreign assets, could still be liable for UK inheritance tax. Under the concept of “deemed domicile,” individuals with UK LTR (long-term resident) or full UK LTR status are treated as UK domiciled for IHT purposes, meaning their worldwide assets are included in the IHT calculation. Even if you are a tax resident in another country, HMRC can still consider you UK domiciled under deemed domicile rules if:

• You were UK resident for at least 15 of the last 20 tax years, or
• You had a UK domicile at birth and have returned for more than one year.

For those with non-UK LTR status, the IHT treatment of non-UK assets may differ, potentially excluding them from the UK IHT net, but UK assets such as UK pensions generally remain subject to UK inheritance tax regardless of residency status.

Changing domicile requires a genuine severing of UK ties and establishing a permanent connection abroad. Even then, HMRC may challenge your status.

How Are Foreign Pensions Treated for UK IHT?

Foreign pensions are usually excluded from UK IHT if they are held outside the UK and you are non-UK domiciled. However, recent legislative changes mean that overseas pensions and non UK pension schemes, such as Qualifying Non-UK Pension Schemes (QNUPS), may be subject to different rules, especially for long-term UK residents. If you are still UK domiciled, foreign pensions may be included in your estate.

Some double taxation agreements (DTAs) can provide relief. For instance, the UK has agreements with countries like France, Spain, Portugal, and Australia that may reduce or eliminate double taxation, but you must understand the specific treaty rules. When reporting foreign pension income to HMRC, be aware that exchange rates can affect the value of your overseas pension income, so it is important to use official rates for tax reporting purposes.

What About UK State Pensions?

The UK State Pension does not form part of your estate and cannot be passed to beneficiaries. It stops on death and is not subject to UK inheritance tax. However, in some cases, spouses may inherit part of the pension through the Additional State Pension. Eligibility and tax treatment of the UK State Pension may differ for a UK national compared to non-UK nationals, especially under certain double tax treaties.

Foreign Income and Double Taxation

Navigating the tax treatment of pension income as a UK expat can be complex, especially when it comes to foreign income and the risk of double taxation. If you receive pension income from a UK pension scheme while living abroad, you may find yourself facing tax obligations in both the UK and your new country of residence.

Fortunately, the UK has established double taxation agreements (DTAs) with many countries to help prevent you from paying tax twice on the same income. These agreements determine which country has the primary right to tax your pension income and often provide mechanisms for tax relief. However, the specific rules can vary depending on your country of residence and the type of pension you receive.

Understanding the tax treatment of your pension income in both jurisdictions is crucial for minimizing your overall tax liability. For example, some countries may tax your UK pension income as foreign income, while others may exempt it or offer tax-free treatment under certain conditions. The interplay between UK income tax and local tax rules can be complicated, so it is wise to consult a financial planner or tax specialist with experience in international pension schemes.

By seeking professional advice and making use of available tax relief, UK expats can ensure their retirement savings are managed tax efficiently, avoid unnecessary tax bills, and make the most of their pension income wherever they choose to live. This could include applying for a nil-rate or NT tax code.

Claiming UK Pensions from Abroad

Living overseas does not prevent you from claiming your UK pension. You can receive your pension overseas, with payments into an international bank account, but this may have implications for tax treatment. In most cases, UK pension income is still taxable — either in the UK or your country of residence, depending on the tax treaty.

If you are a British retiree abroad and receive pension income, you must check if you need to pay tax in the UK, your new country of residence, or both. Taxes can vary significantly between jurisdictions and may affect your net pension income. Double taxation agreements can help prevent paying tax twice.

If you are considering transferring your pension to a QROPS, note that such transfers are generally only permitted if you are a tax resident in the same country as the QROPS provider.

How to Use a SIPP or QROPS to Plan for Inheritance

For British expats looking to manage UK inheritance tax exposure on their pensions, both Self-Invested Personal Pensions (SIPPs) and Qualifying Recognised Overseas Pension Schemes (QROPS) offer viable estate planning tools. However, SIPPs stand out as one of the most flexible and efficient options for those living abroad who wish to retain control of their pension while maximising inheritance planning opportunities. When considering transferring a UK pension fund overseas, it is important to be aware that such a move may result in the loss of valuable benefits associated with the original scheme.

Why SIPPs Are a Strong Choice for Inheritance Tax Planning

SIPPs allow for a wide range of investment options and offer control over how and when funds are accessed. Crucially, if a SIPP is left untouched and the member dies before age 75, the entire pension pot can usually be passed on tax-free to beneficiaries. After age 75, while income tax may apply when beneficiaries draw from the pot, inheritance tax is typically not charged, provided the pension has not been drawn in a way that reclassifies it as part of your estate.

The SIPP structure allows expats to:

• Designate multiple beneficiaries with flexibility over how the funds are inherited (e.g. lump sum or beneficiary drawdown)
• Keep the pension outside of the estate for IHT purposes
• Avoid UK income tax on the pension fund while it remains invested
• Delay withdrawals for better tax efficiency

By retaining the pension within the wrapper and avoiding unnecessary drawdowns, expats can maximise its value and preserve it for the next generation. This can be particularly beneficial for those with other sources of income who do not need to access the pension immediately.

Expression of Wishes and SIPP Nomination

One critical step often overlooked is ensuring your expression of wishes form is up to date with your pension provider. This guides the scheme administrator when deciding who will receive your pension benefits after death. While not legally binding, it holds significant weight. A well-documented form, aligned with your overall estate plan, helps to ensure your wishes are respected and the fund is not inadvertently pulled into probate or your taxable estate.

Using International SIPPs

Some expats choose to set up international SIPPs, which cater specifically to non-UK residents. These can offer even greater flexibility in currency, investment choice, and administration from abroad. International SIPPs are still regulated under UK law but are designed to be more accessible to clients living outside the UK.

QROPS: A Niche Alternative

While QROPS were once a go-to option for expats, their appeal has narrowed in recent years. The Overseas Transfer Charge, introduced in 2017, means that unless you live in the same country as the QROPS or within the EEA, a 25 percent tax may apply when transferring out of the UK.

That said, for British expats permanently residing in selected countries, a QROPS may still offer benefits — such as removing the fund from the UK tax net entirely and offering local currency and administration advantages.

However, a QROPS can lead to the loss of some valuable UK pension protections, such as access to the Financial Services Compensation Scheme (FSCS), and may come with higher costs. For many, particularly those with smaller pension pots or uncertainty about future residency, a SIPP remains a more balanced solution.

Integrating SIPPs Into a Broader Estate Planning Strategy

A well-structured SIPP can also be used in tandem with:

• Offshore bonds, which are tax-efficient international investment products for expats, offering tax deferral, compliance benefits, and segmented gifting strategies. Offshore bonds can play a key role in estate planning or pension withdrawal strategies.
• International investment accounts, with tax-efficient wrappers suitable for your country of residence
• Trust planning, if appropriate for your domicile status and asset profile

For expats wishing to pass on wealth tax-efficiently, the pension can be the last asset you touch, allowing it to grow free from income tax and outside of your estate.

Get Professional Advice Before You Act

Inheritance tax planning involving SIPPs or QROPS should never be approached in isolation. Domicile, residence, local succession laws, and tax treaties all play a role. Even a perfectly structured pension can be pulled into the UK IHT net if the rest of your estate is not aligned.

Before making any transfers or withdrawals, speak to a UK regulated financial adviser with international pension expertise. A personalised strategy ensures your pension works not only for your retirement, but also for your family’s future.

Steps to Reduce UK IHT on Pensions

1. Check your domicile status: This is the foundation of your IHT exposure.
2. Structure your pension: SIPPs and QROPS can provide tax advantages.
3. Use your nil-rate bands: Maximise allowances where possible.
4. Assign beneficiaries: Keep your expression of wishes up to date.
5. Get expert advice: Inheritance tax planning is highly individual and depends on jurisdiction. Your personal circumstances should be reviewed regularly to ensure your estate plan remains effective and tax efficient.

FAQs – UK IHT on Pensions While Living Abroad

Do I pay UK inheritance tax if I live in Portugal?
If you remain UK domiciled, your worldwide assets — including those in Portugal — could be subject to UK IHT.

Is my UK pension taxable in France or Spain?
It depends on the double taxation agreement between the UK and your country of residence. Generally, UK pensions are taxed in the UK unless stated otherwise.

Can British retirees abroad avoid inheritance tax?
Not completely. But with proper planning, including domicile review and pension structuring, the IHT bill can be reduced or eliminated.

Are SIPPs subject to UK inheritance tax?
Not typically, if the member dies before 75 and the pension is left untouched. After 75, income tax may apply instead of IHT. Note: The inclusion of a private pension in the UK IHT net depends on the scheme’s status, location, and recent regulatory changes. Some private pension schemes may have different rules, so it is important to check how your specific pension is treated under current UK IHT regulations.

Does my UK pension go to my children?
If you have nominated them as beneficiaries and your pension allows it, yes. They may be subject to income tax or IHT depending on circumstances.

Speak to a UK Regulated Adviser for Expat Inheritance Planning

Planning for inheritance tax while living abroad is complex. Every country has its own rules and treaties with the UK. The good news is, there are smart ways to structure your pension and estate to minimise your tax liability.

At Harrison Brook, we specialise in cross-border financial advice for British expats. Whether you are retiring in Europe, Asia, or beyond, we can help you make informed decisions about your pensions, IHT exposure, and legacy.

Book a free consultation with one of our UK regulated financial advisers today. Let us help you protect your wealth for the next generation.