How can non-residents access UK pensions tax-free?
17th January 2025
Posted in Articles by Andrew Marr
The default position for UK pension holders is that any payments will be paid under deduction of UK tax. This will be under the PAYE system and will be based on their UK coding notice. This is also the case for non-UK residents, unless they can obtain an NT (no tax) coding notice to allow the pension scheme to pay a pension without the deduction of tax. Whether or not they can do this will depend on what the rules say in the appropriate tax treaty between the UK and the country of residence. Most non-government pension schemes will only be taxable in the country of residence. For example, this would be the case for residents of Dubai, Greece or many other countries. Denmark and a few other countries buck this trend by still giving the UK taxing rights on a pension paid to a non-UK resident.
Getting an NT code
Various forms can be accessed using the following link:
https://www.gov.uk/tax-uk-income-live-abroad/taxed-twice
There are special individual country forms for Australia, Canada, France, Germany, Ireland, Japan, New Zealand, Netherlands, South Africa, Spain, Sweden, Switzerland and USA. Otherwise, a ‘one size fits all’ standard form needs to be used.
This can be a time-consuming task as scheme members also need to communicate with the tax authorities of their country of residence. Furthermore, if no pension payment has previously been taken, there needs to be an initial small payment made by the scheme and this will trigger a notification from HMRC that an NT code is appropriate. Then a much bigger payment can be made using the NT code.
The tax angle
Everything mentioned above is an explanation about how to get the UK scheme to pay a pension gross. If this is not done, then all is not lost because UK tax can be reclaimed either through a self-assessment tax return or using a special form. The most interesting tax angle to this process is that some countries may not tax pensions at all, or they may tax them at a lower rate. Therefore, members of pension schemes could let a combination of a country’s tax treaty and its tax rate on pensions influence where they want to move to. There are various friendly tax regimes out there and we are aware of the tax advantage that may be achieved by moving to the United Arab Emirates, Greece, Portugal, Malta, Isle of Man, Guernsey, Italy or Spain to name a few. Also, there are new schemes that spring up in various jurisdictions which aim to attract wealthy foreigners by offering tempting tax deals.
Forbes Dawson view
Sadly, the exodus of wealthy individuals from the UK seems to be continuing. This is due partly by general increased work mobility helped by technology such as Teams and also due to the practice that everybody got during Covid. It is also often due to a feeling that although they may have ‘broad shoulders’ they feel that the UK tax rules are now tipped unfairly against them. Any ability to access pension scheme assets at a lower rate would always have been attractive, but is now particularly attractive due to the planned imposition of inheritance tax (IHT) on these schemes from 6 April 2027. Great care needs to be taken with this kind of residence planning. For example, pension scheme income can all fall within the UK income tax net once again if an individual does not stay out of the UK for six tax years. Also, there will now be an attraction in remaining outside the UK for another four years in the hope of then moving non-UK assets outside of the IHT net. That is a story for another time.
