Did you know that most UK pension death taxes were removed?


This is the latest update on the removal of death taxes, with improved access to pension funds upon death. No more 55% “death” tax, or indeed any UK tax in most cases, on pension funds when the pensioner dies.

Adverts still abound citing 45% taxes that cannot be avoided on UK pensions upon death whereas, in fact, from the 6th April 2015 -for a pensioner under the age of 75 -there are no UK taxes applied on death. Even for those over 75, there are many options for beneficiaries to keep the fund, or access parts of it, without paying any UK tax. All that is needed is basic tax planning.

WARNING: Simply trying to avoid UK death taxes for beneficiaries who live overseas is only one part of the equation. You need to consider the Double Tax Treaty and the local tax rules of the country in which your beneficiaries reside.

There are three key points here:

  1. Tax planning is not costly;
  2. The issue is one of UK tax, and consideration should always be given to where the beneficiaries of the fund live as taxes may still apply locally that could have been avoided with tax planning!
  3. Make sure you plan for where you are going to retire and not where you live now – there is a big difference in tax positioning usually.

Look at this video:

QROPS – a good idea for death tax planning overseas?

If there is no comprehensive examination of where the beneficiaries are located, and the relevant Double Tax Treaty between their location and where the QROPS is held, then this question about tax upon death cannot be answered.
Bluntly, for some countries a QROPS may be considered, but in many cases a UK pension such as a SIPP is likely to be the best option, especially for people under the age of 75.

We have created a table available to our clients which breaks down the alternative positions on death for people under and over the age of 75 for Defined Benefit schemes, UK pensions and QROPS. If you wish to become a client then please contact us for advice.

Accessing your pension overseas

We will write a separate article covering this aspect. One of the key issues is the examination of the country in which you plan to retire and not where you are living now. The double tax treaty that is available, and how the country that you retire in will tax the benefits from your pensions, and how the country where you pension is based could possibly tax the income is crucial.

TailorMade’s con­clusion

We are of the opinion that the risk of taking a QROPS is unnecessary in many instances where there is uncertainty of where the retiree is likely to be living; the most obvious examples we come across are people advised to take QROPS overseas in their late 40’s and early 50’s and then returning to the UK when they want to retire or because one partner is ill. In these instances a QROPS reverts to UK pension rules and is a complete waste of money.

We are of the opinion that QROPS are often mis-sold as “avoiding tax” when what they actually mean is avoiding “UK tax only”, with no consideration to the tax position of where the client or their beneficiaries will be resident in the future; this is further exacerbated by the fact that QROPS are usually far more expensive vehicles than UK pensions with charges anywhere between slightly more expensive up to 3 times as expensive – which has a big impact on returns but is usually completely ignored or, worse, hidden.

We have created a table available to our clients which breaks down the alternative positions on death for people under and over the age of 75 for Defined Benefit schemes, UK pensions and QROPS. If you wish to become a client then please contact us for advice.

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 in May 2015


About the Author

James Pearcy-Caldwell

I have lived in various countries, but always remained firmly attached to the good old UK. My only goal is to take the experience and insider knowledge that I have, and be transparent with people so they understand the impact of their decisions.


Share this story