When moving abroad, one of the most common questions British expats ask is whether their UK pension remains subject to Inheritance Tax (IHT), in other words, is it still subject to IHT after leaving the UK? Many assume that leaving the UK means leaving behind UK tax obligations, but the reality is more nuanced. Whether you will be charged UK IHT on your UK pension as a non-UK resident depends largely on your domicile status, whether you hold UK based assets, how your pension scheme is structured, and whether benefits have been accessed.

This guide breaks down the key rules, tax reliefs, and planning options to help non-UK residents manage their UK pension and estate efficiently.

Understanding UK Inheritance Tax (IHT)

UK Inheritance Tax is currently charged at 40% on the value of an estate above £325,000 (the nil-rate band). For married couples or civil partners, unused allowances can be transferred, effectively doubling the threshold to £650,000. Certain assets, such as pensions, often fall outside the taxable estate if structured correctly.

However, the determining factor for IHT liability is not where you live but your domicile, a legal concept based on long-term ties and intention rather than mere residency. UK domiciled individuals are currently liable for IHT on their worldwide assets.

Under the previous rules, IHT liability was determined primarily by an individual’s domicile status, which will be contrasted with the new residence-based system discussed later.

Residency vs Domicile: The Key Distinction

• Residency determines which country has the right to tax your income. For tax purposes, UK residence is generally determined by the Statutory Residence Test, which considers factors such as the number of days spent in the UK, connections to the UK, and other personal circumstances.
• Domicile determines whether your worldwide assets fall under UK Inheritance Tax.

Even if you live permanently abroad, you may still be UK-domiciled for IHT purposes if the UK remains your “home of origin.” To shed UK domicile and become non UK domiciled, you typically need to establish a permanent home elsewhere and sever significant ties to the UK — a complex process that often requires legal and tax guidance. Being non UK domiciled can have significant implications for IHT, particularly regarding the treatment of overseas assets and trust arrangements.

Those who were born in the UK with a UK domicile of origin and later acquire a domicile abroad can still be treated as deemed domiciled in the UK if they were UK-resident for at least 15 of the previous 20 tax years. From 6 April 2025, new rules will apply to individuals who are classified as a long term resident or long term UK resident—typically those who have lived in the UK for 10 out of the past 20 years—potentially increasing their exposure to UK IHT on worldwide assets and affecting trust and estate planning.

Are UK Pensions Subject to Inheritance Tax?

Most UK pensions, such as defined contribution schemes and Self-Invested Personal Pensions (SIPPs), fall outside your estate for IHT purposes. This means that the value of the pension fund, including unused pension funds, is not normally subject to inheritance tax when you die.

This treatment applies because the pension remains in trust until benefits are drawn. Since the funds are not legally owned by you but by the trustees, they sit outside your estate. However, a chargeable event, such as death or transfer into a trust, can trigger IHT on the pension fund.

However, exceptions exist:

• If the pension has been crystallised and withdrawals taken, some elements (like drawdown funds) could be considered.
• If death occurs after age 75, beneficiaries may face income tax rather than IHT on withdrawals.
• Certain older pension types or transferred arrangements might inadvertently fall inside your estate.
• Death benefits from pension funds are currently exempt from IHT, but after the 2027 changes, these death benefits will become taxable and should be considered in estate planning.

Impact of New Rules on Pension Assets

The landscape for UK inheritance tax is set to change dramatically with the introduction of new rules from 6 April 2027. Under these updated UK inheritance tax rules, UK-registered pension schemes will be brought firmly within the scope of UK IHT, meaning pension assets could now be subject to a 40% inheritance tax charge on amounts exceeding the nil-rate band (currently £325,000). This significant shift will affect both UK residents and non-UK residents who hold UK pension assets at the time of death.

Importantly, the new rules do not just apply to traditional UK pension schemes. Qualifying Non-UK Pension Schemes (QNUPS) and Qualifying Recognised Overseas Pension Schemes (QROPS) may also be included under the revised UK IHT regime, potentially impacting those who have transferred their pension wealth overseas in search of greater flexibility or tax efficiency. Whether you are a UK resident or a non-UK resident, if you have ties to UK pension schemes or overseas pension schemes with UK links, your pension assets could now form part of your taxable estate for UK IHT purposes.

Given these changes, it is more important than ever to review your estate planning strategy. Individuals with significant pension wealth should reassess their arrangements to minimize potential IHT liability and ensure their retirement savings are protected for future generations. This may involve exploring alternative pension structures, updating beneficiary nominations, or seeking specialist advice on cross-border estate planning. By staying informed and proactive, you can adapt your estate plan to the new rules and safeguard your pension assets from unnecessary UK inheritance tax exposure.

What If You Are a Non-UK Resident?

If you live abroad but retain a UK pension, you may still be considered UK-domiciled unless you have legally severed that status. Consequently, your worldwide estate — including all assets held both in the UK and abroad — could remain within the UK IHT net. Assets located outside the UK, such as non UK property or foreign bank accounts, are generally not subject to UK IHT unless you are UK-domiciled, but this can change depending on your domicile and residency status.

Non-UK residents who have established a foreign domicile and have not been UK-resident for at least three years are typically outside UK IHT on non-UK assets, including non UK property. However, UK-sourced assets, such as UK pensions, UK situs assets, and UK bank accounts, may still attract UK tax considerations depending on the structure. These UK situs assets remain subject to UK IHT even if you are living outside the UK, and from April 2027, UK pensions will continue to be within the UK IHT net regardless of your residence or non-UK property holdings.

It is therefore essential to distinguish between residency, domicile, and asset location. The combination of these determines your ultimate tax exposure.

Double Taxation Agreements and Pension Protection

The UK has signed double taxation agreements (DTAs) with many countries, which can prevent double taxation of pensions and estates. A double taxation agreement can affect not only income and capital gains tax, but also inheritance tax (IHT) in some cases. While DTAs primarily cover income and capital gains, some treaties include inheritance provisions, offering additional protection for cross-border families. HM Revenue & Customs (HMRC) provides guidance and plays a key role in interpreting and applying double taxation agreements, particularly regarding UK domicile status and how tax conventions impact IHT and residency.

If you reside in a country with a tax treaty that recognises exclusive taxing rights over pensions, your UK pension may be treated differently on death. For overseas pension schemes such as QROPS, it is important to be a tax resident in the same country where the QROPS is established to avoid the Overseas Transfer Charge. Examples include France, Spain, and Portugal — popular destinations for British retirees. Nonetheless, professional cross-border advice remains vital, as the rules can vary significantly.

The 7-Year Rule and Gift Planning

Non-UK residents sometimes transfer pension funds into alternative structures, such as authorised unit trusts, or withdraw lump sums to make lifetime gifts to heirs. It is important to remember that lifetime gifts made within seven years of death are subject to the 7-year rule for IHT and may still fall under UK IHT.

If you are still considered UK-domiciled, gifting your pension proceeds as a lifetime gift does not automatically remove them from the IHT net. Pension trusts are often the more efficient route to pass wealth to beneficiaries outside of the estate.

Retirement Income and Taxation

The upcoming changes to UK inheritance tax rules will also have far-reaching implications for retirement income and the overall taxation of pension funds. For beneficiaries of UK pension funds, there is a real risk of facing a “double tax whammy”, first, a 40% UK inheritance tax charge on the value of inherited pension assets above the nil-rate band, and then income tax on any withdrawals made from those funds. This is particularly relevant if the pension holder dies after age 75, but the risk can apply more broadly whenever UK IHT is due on pension assets.

The combined effect of inheritance tax and income tax can significantly reduce the net value of pension income passed on to loved ones, making it essential to plan ahead. To mitigate this risk, individuals should seek specialist advice on estate planning and retirement income strategies. This might include reviewing the structure of your UK pension, considering alternative investment options, and optimizing tax-efficient income streams to reduce your overall UK IHT liability.

For non-UK residents with UK pension assets, the introduction of a new residence-based system for UK inheritance tax means your country of residence could also affect your IHT exposure. Navigating these complex UK tax rules requires professional guidance to ensure your pension wealth is protected and your retirement income is maximized. By taking a proactive approach to estate planning and understanding the tax implications of the new rules, you can help secure your financial legacy and provide for your beneficiaries in the most tax-efficient way possible.

Can You Avoid UK IHT on Your Pension?

While “avoid” may sound aggressive, legitimate planning opportunities exist to mitigate or eliminate UK IHT exposure. Common strategies include:

1. Maintaining pension funds within trust rather than withdrawing large sums.
2. Updating expression of wish forms so the provider knows your intended beneficiaries.
3. Establishing a foreign domicile with evidence of permanent relocation.
4. Exploring international pension structures such as QROPS or International SIPPs, particularly if you have permanently left the UK.
5. Coordinating with local estate tax rules to prevent overlap or double taxation.
6. Considering overseas pensions and understanding their implications for IHT, as UK IHT rules may apply to certain overseas pensions depending on your residency and domicile status.
7. Reviewing alternative investment options, including open ended investment companies, which may be considered excluded property for IHT purposes, especially for non-UK residents and non-domiciled individuals.

It is important to understand the tax treatment of pension funds transferred from the UK to overseas schemes, as recent changes such as the Overseas Transfer Charge (OTC) and evolving IHT rules can impact your overall tax position.

Internationally mobile individuals should regularly review their estate planning in light of changing IHT rules, as cross-border movements and new regulations can significantly affect tax obligations. Staying updated on IHT rules is essential when planning cross-border pension strategies.

These steps should always be taken with advice from a regulated financial adviser familiar with both UK and international pension regimes.

How Harrison Brook Helps

At Harrison Brook, we specialise in cross-border financial planning for British expats and international professionals. Our advisers understand how to navigate UK pension taxation, domicile rules, and inheritance tax implications across multiple jurisdictions.

We also work closely with a trusted network of tax advisers and estate-planning specialists, ensuring that your pension and estate are structured efficiently wherever you live. We provide comprehensive estate planning advice tailored to your unique personal circumstances and financial situation.

Whether you are retired in Spain, working in Singapore, or living between countries, our independent advisers can help protect your family’s future.

FAQs – Will I Get Charged UK Inheritance Tax on My UK Pension as a Non-UK Resident?

Do I pay IHT if I am a non-UK resident?
You may still pay UK IHT if you are UK-domiciled or deemed domiciled. Residency alone does not exempt you. Recent rule changes driven by the UK government mean that even non-residents with UK assets may be subject to IHT.

Are UK pensions exempt from IHT?
In most cases, yes. Defined contribution pensions are held in trust and usually fall outside your taxable estate. Previously, pension death benefits could often be passed on tax free, but recent UK government policy changes are reducing this advantage, so proactive estate planning is now more important.

What happens if I die after age 75?
Your beneficiaries may pay income tax on withdrawals but not inheritance tax.

Can I transfer my UK pension abroad to avoid IHT?
Transferring to a qualifying overseas scheme such as a QROPS can offer flexibility, but you should seek regulated advice first.

What is the difference between domicile and residency?
Residency relates to where you live. Domicile reflects your permanent home and long-term ties, which determines IHT exposure. Your residence and domicile status also affect how your foreign income and overseas assets are taxed by the UK government.

Speak to an adviser

If you are living abroad and unsure how UK Inheritance Tax could affect your pension or estate, speak with a Harrison Brook adviser today. Our cross-border team can help you structure your pension efficiently and ensure your wealth passes to your loved ones tax-effectively.

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