Living abroad but still paying UK tax on your pension?
Michael had a UK pension and wanted to begin taking retirement income while living overseas. He was unsure how withdrawals would be taxed, whether his existing investment strategy was appropriate or how much income the pension could reasonably support.
Client snapshot
Michael was a British expat living overseas with an existing UK defined contribution pension.
He was approaching the point where he wanted to begin drawing from the pension, but there was no clear withdrawal strategy and the tax position had not been properly addressed.
His pension remained invested under an older strategy that had not been reviewed against his current circumstances, intended retirement date or income requirements.
Michael needed help understanding the available pension access options, reviewing the investment structure and completing the appropriate process to apply for an NT tax code.
The situation
Michael had spent years building his UK pension, but the practical decisions around using it had been left until retirement was approaching.
He knew the pension could provide part of his future income, but he was unclear about how withdrawals would work while he lived overseas.
Would UK tax be deducted automatically? Could he access the pension flexibly? Should he take a lump sum or establish regular withdrawals? Would the existing investments support the way he intended to use the money?
There was also uncertainty about how much he could draw without placing unnecessary pressure on the pension.
The existing portfolio had been selected years earlier, when retirement was still some distance away. It had not been reviewed against Michael’s current risk tolerance, cash needs or intended withdrawal pattern.
He was concerned about paying unnecessary UK tax, but he also did not want to make decisions based on tax alone.
The pension needed to be considered alongside his residency, other income, cash reserves, investment assets and long-term retirement plans. Registering for an NT tax code was only one part of the wider planning work.
The risk of doing nothing
UK tax continuing to be deducted
Without addressing the tax position, UK income tax could continue to be deducted from pension payments even where different treatment may apply under the relevant circumstances.
Withdrawals made without a plan
Taking ad hoc payments without modelling future income needs could make it harder to assess whether the pension remained sustainable.
The investment strategy remaining outdated
The existing portfolio may not have reflected Michael’s current risk tolerance, retirement timeframe or planned withdrawals.
Taking too much too soon
Accessing a large amount without considering future spending and income could reduce the pension’s ability to support later retirement.
Holding unnecessary cash inside the pension
Moving too much of the portfolio into cash could reduce investment risk in the short term but create a longer-term inflation risk.
Market falls affecting planned income
Regular withdrawals during a market decline could place additional pressure on the pension if the investment and cash-flow strategy were not coordinated.
Tax decisions being made in isolation
Focusing only on obtaining an NT tax code could overlook tax obligations or planning considerations in Michael’s country of residence.
Are you being taxed on your UK pension abroad?
Seeing UK tax deducted from a pension payment can be frustrating, particularly when you are no longer UK resident.
However, the correct treatment depends on your residency, the type of pension income, the relevant double taxation agreement and HMRC approval.
If you are planning pension withdrawals while living overseas, book an introductory call and we can review the tax position alongside the wider retirement income plan.
What Josh found
Michael’s pension access, tax position and investment strategy had not been designed as one coordinated plan.
The pension allowed flexible access, but there was no agreed framework for how withdrawals should be taken or how much capital should remain invested.
The underlying investment strategy also needed to be reviewed. A portfolio designed primarily for long-term accumulation may not automatically remain appropriate once regular withdrawals begin.
Michael needed sufficient liquidity for expected pension payments while retaining an investment approach capable of supporting longer-term retirement objectives.
The UK tax position required separate attention.
Depending on individual tax residency, the type of pension payment and the provisions of the applicable double taxation agreement, certain UK pension income may be taxable primarily in the individual’s country of residence rather than the UK.
An NT tax code may allow a UK pension provider to make payments without deducting UK income tax. However, it does not remove any potential tax reporting or payment obligations in the country where the recipient is resident.
The appropriate HMRC process therefore needed to be completed alongside the retirement income and investment review.
The planning work
Reviewing the pension arrangement
Josh obtained and reviewed the pension’s current value, charges, investment options, access rules and available drawdown features.
Establishing the income requirement
Michael’s expected expenditure, other income sources, cash reserves and retirement objectives were assessed to understand what the pension needed to provide.
Reviewing the withdrawal options
The available choices, including lump sums, phased access and regular drawdown, were explained in the context of Michael’s circumstances.
Assessing the investment strategy
The pension portfolio was reviewed against Michael’s risk tolerance, withdrawal needs, time horizon and capacity to absorb market falls.
Creating an appropriate liquidity reserve
A suitable level of accessible cash or lower-volatility assets was considered to support planned withdrawals without relying entirely on selling investments at an unsuitable time.
Completing the NT tax code process
Josh helped Michael complete the relevant process to apply for an NT tax code, subject to his residency, applicable treaty provisions and HMRC approval.
Coordinating the wider tax position
The UK pension tax treatment was considered alongside Michael’s obligations in his country of residence, with specialist tax input required where appropriate.
The outcome
Michael gained a clearer understanding of how his UK pension could support his retirement while he remained overseas.
He understood the available withdrawal options, the risks associated with drawing too much too quickly and how the investment strategy needed to support both current income and longer-term objectives.
The pension portfolio was reviewed and aligned more closely with his intended use of the money rather than being left under an accumulation strategy that had not been revisited.
The NT tax code process was also completed, subject to HMRC approval and the relevant tax rules, helping address the way UK tax was deducted from eligible pension payments.
Most importantly, the tax code was not treated as the entire solution. It became one part of a broader retirement income plan covering investment risk, access, liquidity, future spending and cross-border tax considerations.
Who this may help
Expats paying UK tax on pension income
You live overseas but UK income tax is still being deducted from payments made by your pension provider.
People approaching pension access
You are considering your first pension withdrawal but are unsure whether to take a lump sum, phased payments or regular income.
Retirees without a drawdown strategy
You have an existing UK pension but no coordinated plan for investment, withdrawals, tax and long-term income sustainability.
Still scrolling? It is probably time to book a call.
If you are living abroad and planning to access a UK pension, the decision involves more than completing an HMRC form.
You need to understand how the withdrawals could be taxed, how much income the pension may need to provide and whether the investments are appropriate for drawdown.
Book an introductory call with Josh Clancey and let’s review the position before you begin taking money from the pension.
Important information
This client story is provided for general information only. It is based on a real client scenario, but the client’s name and identifying personal, employment and financial details have been changed to protect confidentiality.
Nothing on this page constitutes personalised financial, tax, legal, pension transfer, investment, insurance, estate planning or retirement advice.
The suitability and tax treatment of any financial arrangement will depend on individual circumstances, residency, jurisdiction, applicable legislation, double taxation agreements, scheme rules, policy terms and the advice process. Tax rules and their interpretation may change.
An NT tax code is not automatically available to every person living overseas. Eligibility and the correct application process will depend on individual tax residency, the type of pension income, applicable treaty provisions and HMRC approval.
Receiving UK pension payments without UK tax being deducted does not necessarily mean that the income is tax-free. Tax reporting or payment obligations may arise in the individual’s country of residence.
Pension transfers, pension consolidation, pension drawdown, investment decisions, tax planning, protection planning and estate planning decisions should be reviewed carefully before action is taken.
Investing involves risk. Pension and investment values can fall as well as rise, and you may get back less than you invest. Taking withdrawals during periods of poor investment performance can reduce how long a pension lasts.
Insurance and protection claims are subject to policy terms, underwriting, medical or financial evidence and the insurer’s assessment. A claim is not guaranteed to be accepted.
