This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, it is subject to change and we are not responsible for any errors or omissions.
You may have heard that the 2024 Autumn Statement brought an important change to pensions that could affect expats. A 25% Overseas Transfer Charge (OTC) now applies to people who transfer their UK pension to a Recognised Overseas Pension Schemes (ROPS) in another country in the European Economic Area (EEA) and Gibraltar.
What is the significance of this change, and why has it happened? Below, our financial advisers offer some reflections and discuss how the change could affect expat financial planning in 2025 and beyond.
We hope this is helpful, and please contact us to arrange a free, no-commitment consultation if you want to discuss your own financial plan with an expat financial adviser.
What has changed?
Back in March 2017, the UK government announced that certain UK-based pensions would face a 25% tax charge if they were transferred to QROPS based in specific locations overseas.
This charge was not applied to British expats who were residents of an EEA country (or Gibraltar) and who transferred their UK pension to QROPS there.
However, this exception was removed in the 2024 Autumn Statement. Moreover, from 6 April 2026, all pension schemes registered in the UK must be governed by administrators who are UK residents.
Why has this happened?
One justification given by the UK government is to tackle pension scams.
The Pension Schemes Newsletter (no. 164) was released on the same day as the 2024 Autumn Statement and draws attention to the rise in pension-related fraud, which involves convincing victims to move their pension pot to a new scheme.
By introducing a blanket 25% OTC, potential victims might be spared as they think twice before impulsively transferring their life savings overseas.
A more cynical interpretation of the change would be that the government is seeking to raise more tax revenues to balance the strained public finances.
The inheritance tax (IHT) change
Another key change from the 2024 Autumn Statement is that pension pots will fall under the UK’s inheritance tax (IHT) regime from April 2027.
For many years, defined contribution pensions in the UK have been exempted from the value of an individual’s estate upon death. This meant that no IHT was due on the value of any unused funds (although beneficiaries may have faced income tax on inherited funds if the original owner died after age 75).
These two pension tax changes from the Autumn Statement arguably put expats in a more restricted position for financial planning.
Not only will more of them now face UK inheritance tax on their pension savings, but they cannot easily escape the UK tax net simply by moving these out of the country (due to laws about “ residency” and IHT).
What it all means for expats
Some fairly radical ideas have been advanced in the media to try and help expats avoid IHT on their pensions (e.g. the “Die in Dubai” idea). However, for many expats – e.g. those committed to living their retirement in Spain or elsewhere – these ideas may not be feasible.
With that said, it seems reasonable to expect that the Autumn Statement will boost interest from British nationals about moving their pensions overseas (e.g. to a ROPS). Whilst a 25% OTC is unpleasant, it could be worth it for certain expats – e.g. those planning to domicile in a location where no (or a low rate of) IHT is levied on pensions,
Quite likely, many expats will now decide that transferring their UK pensions overseas is now prohibitively expensive. These individuals may now face IHT on their UK-based pensions after April 2027, even if their permanent home (domicile) is abroad.
Bear in mind, however, that many strategies still exist to mitigate needless IHT on your estate, including pension savings. For instance, a British expat can still make £3,000 in gifts each year (e.g. from a pension pot) without these getting counted as part of their estate for IHT purposes.
Moreover, British expats are still entitled to many IHT allowances – e.g. the nil rate band (NRB), which allows you to pass down £325,000 when you die without an IHT charge.
Moreover, your spouse or civil partner is entitled to their own NRB on UK-based assets (regardless of their domicile). As such, a married couple could still pass down a combined £650,000 to beneficiaries without IHT after the second death.
If you have made it this far, you will see these can become deep waters quite quickly! The best course is to seek advice from a specialist in expat financial planning if you want to explore your pension options.
If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
Please note that we are not tax advisers and that the informaton is based on our understanding of the proposed legislation which is open to change.