Avoiding Unnecessary Tax On Pension Income | Pensions Guidance

Pension Income

1. You can ensure that you do not pay unnecessary taxes on pension income by the completion of a few simple forms.
2. You should not be concerned about paying tax twice on pension income sourced from the UK in most cases.
3. You should be allowed to offset the tax against earnings wherever you are living.

Yet, countless non-UK websites encourage people to transfer their pensions to QROPS suggesting that the pension income will either not be taxed or that the tax will be lower.  In fact, people are told to move assets outside of the UK for tax efficiency for no reason.


Hidden commission on new products is often the reason. However, instead of filling in lots of forms that cost money you can fill in 2 smaller forms for FREE!

Pension Income- The UK Personal Allowance

Advisers might not always tell you that, currently, the personal tax band in the UK means that unless your fund is in excess of £400,000 the chances are you have no tax to pay in the UK anyway! (Assuming the 25% PCLS is taken and the balance as income and not taking into account any State Pension)

Check the UK double tax treaties to see if tax on your pension income only needs only be paid where you live.

It seems that many, both in the UK and abroad, have been paying too much tax on Emergency Code and some have not reclaimed it. This is now being highlighted as a problem highlighted in this Citywire article.

Pension Income and the NT Code- Key Point

There is a straightforward procedure that will allow you to get your private or company pension paid gross in the UK. (Civil Service pensions, not including NHS pensions, will always be taxed in the UK however)

1- Arrange for your company scheme to start paying the pension or, if you have a private pension, look to take a minimal amount of income. The pension company will contact HMRC with a tax code – there may be a tax deduction at this point.
2- Go to this link and download the application for relief at source from United Kingdom income . Make an appointment at your local tax office, who will provide confirmation that you are tax resident there.
3- Send the forms to HMRC. HMRC will issue an NT code to the pension provider. The pension will be paid gross and any initial tax taken will be rebated.

But, don’t let the tax tail wag the pension dog-

 Using a transparent, regulated, fee-based adviser will increase your chances of having a larger taxable income in retirement. No one likes paying taxes, but everyone wants a better income.
 Many  “expat IFA advisers”  are salespeople with limited, if any, financial qualifications.  They have a vested interest in getting you to move your pension or assets out of the UK, often claiming you will have to pay UK tax if you do not.

The tax may end up being lower but this will be because the fund you moved out of the UK for the wrong reason will be lower and nothing to do with HMRC.

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was published on 29th May 2018


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

Related Stories:
Advise Me

Share this story