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UK Pension Overseas Transfer Loophole Change and What It Means for Expats Now
Hoxton Blog • UK Pension Overseas Transfer Loophole Change and What It Means for Expats Now
The UK has closed a long-standing loophole that allowed many pension holders to transfer pensions overseas without an immediate tax charge.
From late 2024, most overseas transfers now face a 25% Overseas Transfer Charge. This article explains what changed, who is affected, and what expats should do next.
Why Moving a UK Pension Abroad is Now Far More Expensive
For years, British expats have been able to transfer UK pensions overseas using structures known as QROPS, often without triggering an immediate UK tax charge.
This approach was widely used by those relocating abroad who wanted flexibility, currency alignment, or different tax treatment.
In late 2024, the UK government changed the rules. The loophole that allowed many tax-free overseas pension transfers has now been closed. As a result, most overseas transfers are subject to a significant tax charge.
This change affects UK pension holders around the world, particularly expats who were planning to move pensions abroad as part of their long-term retirement planning.
In this article, we explain what the overseas transfer loophole was, what has changed, and what the new rules mean in practice for expats today.
Why Listen to Us?
Hoxton Wealth advises expats across Europe, the Middle East, Asia, and the U.S. Many of our clients hold UK pensions and are directly affected by changes to overseas transfer rules.
Our advisers work closely with clients to model pension transfers under the new regulations, assess tax exposure, and identify compliant alternatives. This experience provides practical insight into how the overseas transfer loophole change affects real-world retirement planning. You can learn more about our background and client feedback through Hoxton Wealth’s company and reviews pages.
What Was the Loophole and How Did QROPS Work?
QROPS stands for Qualifying Recognised Overseas Pension Scheme. These schemes are overseas pension arrangements that meet specific UK requirements and are recognised by HMRC.
Historically, pension holders could transfer UK pensions to a QROPS without triggering a UK tax charge if certain conditions were met. This was particularly common when transferring to schemes based in the European Economic Area or Gibraltar.
For expats, QROPS offered several perceived advantages. Pensions could be held in a local or more familiar jurisdiction, benefits could sometimes be paid in a preferred currency, and there was often greater flexibility over withdrawals.
In some cases, QROPS were used to access pension benefits earlier or structure withdrawals in a more tax-efficient way. While the rules were complex, many expats viewed QROPS as a useful tool for international retirement planning.
Over time, however, concerns grew around abuse and inconsistent tax outcomes. This led the UK government to reassess how overseas transfers were taxed and regulated.
What Changed: UK Government Reforms
The key change took effect on 30 October 2024. From this date, the UK removed the broad tax-free exemption for transfers to QROPS in the EEA and Gibraltar.
Under the new rules, most overseas pension transfers are now subject to the 25% Overseas Transfer Charge. This applies regardless of whether the receiving scheme is in the EEA, Gibraltar, or elsewhere.
From 6 April 2025, further changes will tighten compliance requirements for overseas schemes. These reforms aim to align rules between EEA and non-EEA jurisdictions and increase consistency in how transfers are treated.
The result is a much narrower set of circumstances in which a transfer can be made without an immediate tax charge. For many expats, the cost of transferring has increased significantly.
These changes reflect a shift in policy. The UK government now treats most overseas transfers as potential early access to pension benefits and applies tax accordingly.
What This Means in Practice for Expats and Pension Holders
In practice, the new rules mean that most pension holders transferring funds overseas will face a 25% tax charge at the point of transfer.
This charge is known as the Overseas Transfer Charge, or OTC. It is deducted from the pension being transferred and paid to HMRC.
There is still an Overseas Transfer Allowance, or OTA. This allowance broadly aligns with the UK Lifetime Allowance framework and is currently set at £1,073,100. Transfers above this threshold may trigger additional tax.
For expats with large pension pots, this can significantly reduce the amount transferred overseas. A £500,000 transfer could result in a £125,000 tax charge, reducing the pension available for investment or income.
The change also reduces the relative benefit of overseas transfers compared with UK-based solutions such as SIPPs or international SIPPs.
These rules make it essential to assess transfers carefully. A strategy that made sense before October 2024 may no longer be suitable today.
Who Is Most Affected and Who Might Still Benefit?
The people most affected by the loophole closure are expats who were planning to transfer large UK pension pots overseas to benefit from perceived tax advantages.
Those who had not yet initiated a transfer before the rule change may now face substantial tax costs that were not previously expected.
Some expats may still benefit from transferring, particularly if the receiving scheme is in their country of residence and fully compliant with the new rules. However, these cases are narrower and require careful assessment.
There are also risks for those transferring to non-compliant schemes or jurisdictions with weaker regulation. Transfers to such schemes may face additional penalties or future tax issues.
Understanding whether an exemption applies requires detailed analysis of residency, scheme location, and compliance status.
Why This Matters for Expats in 2026
Looking ahead, the impact of these changes will become more pronounced. Many expats who were planning to retire in the coming years will need to revisit their assumptions.
The 25% Overseas Transfer Charge represents a significant reduction in pension value. For long-term planning, this can affect income projections, estate planning, and overall financial security.
Those who have already transferred pensions overseas may also need to review their arrangements. Compliance with new rules and reporting requirements will be essential to avoid future issues.
For expats, understanding these changes is no longer optional. Overseas pension planning now requires a more cautious and structured approach.
What Are the Next Steps?
The first step is to pause before making any transfer decisions. What worked under the old rules may no longer be appropriate.
Check where any proposed receiving scheme is based and whether it aligns with your country of residence. Scheme location now plays a critical role in tax treatment.
Calculate your Overseas Transfer Allowance and assess whether a transfer would exceed the tax-free threshold.
Seek professional advice. A regulated adviser can model the net outcome of a transfer, factoring in the Overseas Transfer Charge, local tax treatment, and long-term implications.
It may also be worth considering alternatives. UK-based pensions, SIPPs, or diversified global investments may provide flexibility without triggering the 25% charge.
Services such as Pension Planning and Transfers, and Review Your Pension Solution can help assess these options objectively.
How Hoxton Wealth Can Help
Hoxton Wealth supports expats navigating complex pension transfer rules, including the new overseas transfer reforms.
We provide personalised pension transfer modelling that considers the Overseas Transfer Charge, the Overseas Transfer Allowance, and your specific residency and tax situation.
Where a transfer is no longer optimal, we help clients explore alternatives such as UK-based pensions, international SIPPs, or diversified investment strategies.
Our advisers take a holistic approach to retirement planning, considering tax, estate planning, currency exposure, and long-term income needs.
Conclusion
The UK pension overseas transfer loophole has been closed. From late 2024, most overseas pension transfers are now subject to a 25% Overseas Transfer Charge.
For expats, this represents a major change. Strategies that once appeared tax-efficient may now result in significant upfront costs.
Understanding the new rules and seeking professional advice is essential before making any pension transfer decisions. Hoxton Wealth helps expats navigate these changes and avoid unexpected tax charges.
To review your options, contact Hoxton Wealth to get started.
FAQs
What Is the Overseas Transfer Charge (OTC)?
The OTC is a 25% tax applied to most overseas pension transfers made after October 2024.
Can I Still Transfer My Pension to a QROPS After the Rule Change?
Yes, but most transfers will now trigger the 25% charge unless a specific exemption applies.
How Does the Overseas Transfer Allowance Work?
The OTA sets a threshold for tax-free transfers. Amounts above this may be subject to additional tax.
Will My Transfer Be Taxed If I Move to a Country with a Non-Compliant Scheme?
Transfers to non-compliant schemes carry a higher risk and may face additional penalties.
Are There Any Exemptions to the 25% Overseas Transfer Charge?
Exemptions are limited and depend on residency and scheme location.
How Do I Know If My Pension Scheme Qualifies for QROPS Status
HMRC maintains a list of recognised schemes, but qualifying status alone does not guarantee tax-free treatment.
How Can We Help You?
If you would like to speak to one of our advisers, please get in touch today.
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