Should expats be wary of cashing in their pensions under the new rules

Published:  23 Apr at 6 PM
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Experts are warning that UK retirees living overseas may face tax implications if they choose to cash in their defined contribution pension pots.

The new rules outlined in the chancellor’s 14 March Budget speech appeared to offer enhanced flexibility, but the finer details have yet to be worked out. Although the present rules as regards forced annuity purchases are to be scrapped and savers will be allowed to withdraw the total amount or opt for flexible pension drawdowns, cash taken from the pot will be liable for tax in the year in which it was drawn down.

The rule will apply equally to UK residents and expats, as those living overseas are still liable for tax on UK-generated income such as pensions, buy-to-let property income or investments. Being non-resident is not a get-out, and the drawdowns may also be taxed in expat countries of residence.

Retirees who take flexible drawdowns may open themselves to a riot of tax liabilities including lifetime allowance tax charges, income tax and inheritance tax. In addition, expat pension provisions within double taxation agreements may become irrelevant, as cashing in a plan isn’t likely to be seen as a pension by the UK tax authority

The budget measures only apply to pension savings plans based on investments as these don’t offer eventual benefits set in advance. Those on defined benefit schemes are not at present being included, although transferring to an overseas QROPS gives considerably more flexibility than the annuity option and eradicates the risk of the taxman coming to call.
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