British expats face complexities in taxation and advice protection when managing their pensions abroad.
Two recent developments highlight important issues for British expats managing pensions overseas: a tax tribunal victory for a former Tesco employee, and questions over whether UK financial advice on offshore pension transfers is always protected by the Financial Ombudsman Service (FOS).
Tribunal Rules Pension Withdrawals Tax-Free in Portugal
Trevor Masters, who worked at Tesco for 32 years, successfully appealed against HMRC over a £1.5mn UK tax bill on his pension withdrawals. After transferring his £6mn defined benefit (DB) pension to a self-invested personal pension (SIPP), he moved to Portugal in 2019 under the country’s Non-Habitual Resident (NHR) regime, which granted certain tax exemptions for 10 years.
HMRC argued that withdrawals from the SIPP should be taxed in the UK because the transfer broke the link to Masters’ past employment. However, the tribunal disagreed, ruling that the pension payments still counted as being “in consideration of past employment.” Under the UK–Portugal tax treaty, this meant they were taxable only in Portugal, not the UK.
The judgment provides clarity for British expats who have transferred workplace pensions into SIPPs, though tax specialists warn it does not guarantee the UK will not tax in all cases. The link to past employment remains a critical factor, and personal pension contributions may not qualify in the same way.
For British expats, the link to past employment remains a critical factor, and personal pension contributions may not qualify in the same way.
Risks Around Overseas Pension Transfer Advice
At the same time, concerns are being raised about the protection available when UK advisers give advice on overseas pension transfers, particularly QROPS (Qualifying Recognised Overseas Pension Schemes).
Chief Investment Officer of Aisa International, Chris Lean, highlighted that not all advice from UK-regulated firms automatically falls under FOS protection when given to clients abroad. While some forum discussions suggested otherwise, Lean explained that UK firms would need to opt into FOS “voluntary jurisdiction” for advice on QROPS-to-QROPS transfers to be covered — something many firms avoid due to higher compliance costs and insurance risks.
The FOS confirmed that protection is not automatic. Complaints about QROPS advice may be considered, but only depending on the circumstances. Advice on UK-authorised products to overseas consumers is generally covered, but cross-border transfers between non-UK schemes fall into a grey area.
Lean warned this uncertainty could create a “false sense of comfort” for British expats, who believe they are protected, when in fact they may not be.
What This Means for British Expats
Together, these developments show the complexities British expats face in managing pensions abroad:
- Taxation: While the Tribunal ruling provides relief in this case one wonders whether HMRC will continue to consider whether withdrawals will be taxed in the UK unless there is a clear link to past employment.
- Advice Protection: Expats should not assume UK financial advice on overseas transfers is automatically backed by the FOS. Checking a firm’s regulatory scope — and whether they’ve opted into voluntary jurisdiction — is essential.
For British expats, both cases highlight the need for careful planning, professional guidance, and a clear understanding of the limits of tax treaties and consumer protections.
