Pension Transfers

Tax Implications of Pension Transfers

By QROP Direct Editorial Team · Reviewed by an independent regulated pension specialist · Reviewed 2026-06-10

Tax Implications of Pension Transfers

Pension transfers involve specific UK tax considerations that every expat should understand before moving their retirement savings. The tax framework differs significantly depending on whether you are transferring between UK registered schemes (SIPP to SIPP) or transferring to an overseas scheme (QROPS). Getting this wrong can result in unexpected and substantial tax charges.

This guide explains the complete tax framework for pension transfers — covering the Overseas Transfer Charge, the Lump Sum Allowance, the post-LTA framework, and key planning considerations for UK expats.

This guide is for information purposes only and does not constitute financial, tax or legal advice. Pension transfer tax is a specialist area. Always take regulated financial advice before transferring.

Key Takeaways

• SIPP-to-SIPP transfers: no UK tax — not a benefit crystallisation event, no OTC
• QROPS transfers: 25% OTC applies unless the residency match exemption is met
• LSA (£268,275) is not affected by transfers — only crystallisations use it
• LTA was abolished April 2024: The old LTA charge no longer applies, replaced by LSA and LSDBA
• QROPS reporting window: During 10 years, benefit payments tested against HMRC rules
• No retrospective OTC for existing QROPS members from before October 2024

The Post-LTA Tax Framework (2026)

The Lifetime Allowance (LTA) was abolished with effect from 6 April 2024 (Finance (No.2) Act 2023). Under the new framework, three limits replace the LTA (Source: HMRC Pensions Tax Manual, gov.uk, 2026):

Lump Sum Allowance (LSA): £268,275 The maximum amount that can be taken as a tax-free lump sum across all pension schemes in a lifetime (pension commencement lump sum, serious ill-health lump sum, etc.). Amounts above the LSA are taxable as income.

Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100 The combined limit for tax-free lump sums and death benefit lump sums. Relevant for QROPS death benefit reporting during the 10-year window.

Transfers are NOT benefit crystallisation events. Moving pension funds from one registered scheme to another, or from a UK scheme to a QROPS, does not use LSA or LSDBA. These allowances are only used when benefits are actually paid out.

UK-to-UK Transfers: No Tax Implication

Transferring between UK registered pension schemes — from a workplace DC pension to a SIPP, from one SIPP to another, from a personal pension to an international SIPP — has no UK income tax or immediate tax implication:

• Not a benefit crystallisation event: The transfer does not trigger LSA testing
• No Overseas Transfer Charge: The OTC only applies to transfers to overseas schemes (QROPS)
• Pension tax protections maintained: The funds remain within the UK pension wrapper, retaining all UK pension tax protections
• No PAYE or income tax: The transfer payment goes directly from scheme to scheme, not to the member

The only exception is if the transfer involves funds leaving the UK pension wrapper and being paid to the member directly — this would be a taxable payment, not a transfer. Genuine pension-to-pension transfers are scheme-to-scheme only.

QROPS Transfers: The Overseas Transfer Charge

The Overseas Transfer Charge (OTC) applies to transfers from a UK registered pension scheme to a Qualifying Recognised Overseas Pension Scheme (QROPS). The OTC rate is 25% of the transfer value (Source: Finance Act 2017, gov.uk, 2026).

Current OTC Exemptions (from October 2024)

Following the Autumn Budget 2024 removal of the EEA blanket exemption (Source: Autumn Budget 2024, gov.uk, 2026), the remaining exemptions are:

Residency match: You are tax resident in the same country as the QROPS at the time of transfer. This is now the primary exemption.

Employer arrangements: Transfers where the QROPS is an occupational scheme sponsored by the member's employer may be exempt in specific circumstances.

Deceased member transfers: Certain transfers after death.

The EEA blanket exemption (which previously allowed OTC-free transfers to Malta, Gibraltar, and other EEA-jurisdiction QROPS regardless of the member's residence) was removed from 30 October 2024.

How the OTC Is Collected

The OTC is deducted from the transfer before it reaches the QROPS. The ceding UK scheme (or the QROPS receiving scheme) is responsible for reporting and paying the OTC to HMRC. The member receives the transfer value minus the OTC charge.

Example: Transfer value £400,000. OTC at 25% = £100,000. Transfer received by QROPS = £300,000.

The 5-Year Refund / Clawback Mechanism

The OTC operates with a 5-year adjustment window:

• OTC refund: If you paid OTC and within 5 years become resident in the QROPS jurisdiction, HMRC refunds the OTC charge
• OTC clawback: If you received an OTC exemption and within 5 years move out of the QROPS jurisdiction, the OTC becomes payable

This mechanism requires the QROPS administrator to report residency changes to HMRC. Our QROPS 5-year rule guide covers this in full.

Existing QROPS Members: No Retrospective OTC

Members who had already transferred to an EEA-jurisdiction QROPS before 30 October 2024 under the EEA blanket exemption are not retrospectively charged the OTC. The change only affects new transfers from 30 October 2024 onwards.

QROPS: The 10-Year Reporting Window and Tax

Within the 10-year HMRC reporting window after a QROPS transfer, benefit payments from the QROPS are reported to HMRC and potentially subject to UK tax:

• Lump sum death benefits: Tested against the LSDBA (£1,073,100). Amounts exceeding remaining LSDBA are subject to UK income tax in the beneficiary's hands.
• Benefit payments that would be unauthorised under UK rules: Taxed as unauthorised payments (40%+ charges).
• Standard drawdown income: Not subject to UK income tax if within the reporting window (taxable only in the member's country of residence under the applicable DTA).

After 10 years, the QROPS is entirely outside HMRC's jurisdiction. Benefit payments are governed only by the scheme's own jurisdiction rules.

SIPP Annual Allowance and Contributions Post-Transfer

Transferring a pension does not affect the annual allowance (£60,000 in 2026 for most individuals). The annual allowance governs contributions to UK registered pension schemes, not transfers between them. A pension that has been transferred and crystallised (benefits taken) may be subject to the Money Purchase Annual Allowance (MPAA) of £10,000 — but the transfer itself does not trigger the MPAA. Only the commencement of flexible drawdown or UFPLS triggers the MPAA.

Practical Tax Checklist for Pension Transfers

Before any pension transfer, work through the following:

For SIPP-to-SIPP transfers: - Confirm the receiving scheme is FCA-authorised and HMRC-registered - Check for exit charges at the ceding scheme (particularly for older contracts) - Check for safeguarded benefits (GARs, protected pension ages) that would be lost

For QROPS transfers: - Is the OTC applicable? If yes, calculate the cost and model the break-even period - Does the residency match exemption apply? - Will the OTC be refunded if you move to the QROPS jurisdiction within 5 years? - What are the total fees (OTC + QROPS annual costs) vs the projected tax saving in your country of residence? - Is regulated advice required (DB or safeguarded benefits)?

Our pension transfer checklist guide provides a complete 20-point pre-transfer checklist.