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How will my UK pension be taxed if I live overseas? How can I apply for an NT Tax Code?

Living abroad often means accepting bureaucracy as a way of life whether it be dealing with matters in your new country or back in the UK. It helps to be armed with clear information and a pro-active plan. This article looks at the subject of receiving income from a UK pension overseas and – most importantly – receiving it without any tax deducted at source by HMRC.


What happens when I receive income from my UK pension while living overseas?

When you receive income from a UK pension, the pension provider reports the payment to HMRC and they apply a tax code which determines how much tax you will pay.

Unless they know otherwise, the default code used is 1257L which is the standard tax code and means you pay income tax at marginal UK rates. The code neatly refers to the tax-free personal allowance of £12,570.

The first 25% of your pension (the pension commencement lump sum – PCLS) – if you are crystallising the full amount – is not subject to tax in the UK but you may have to pay tax on it in your country of residence. It is your responsibility to follow the tax rules of the country where you are resident.

Don’t assume that if you take an amount below the personal allowance that you won’t be taxed. When you withdraw an amount through flexi-access rules the pension scheme may apply tax as though this was a regular monthly amount. It is best to take financial advice when considering your pension drawdown options.


How can I receive my UK pension overseas without paying tax in the UK?

Non-UK residents can apply directly to HMRC to obtain an NT code.


What is an NT code?

The NT stands for “nil-tax” and means that an individual is exempt from paying income tax on that specific income. In the case of non-residents this is because they are liable for tax in another country and, as per existing double-tax agreements between their country of residence and the UK, they are exempt from tax in the UK.


How can I get an NT code?

There are many erroneous articles and videos online from international financial advice firms which state that you only need to complete a P85 and then it is possible to take money from your UK pension without UK tax withheld at source.

This is incorrect, and a gross over-simplification of the process to receive UK pension income without UK tax withheld at source.

If you are a non-UK resident you should have completed a P85 which is the formal communication to HMRC that you are no longer a UK resident.

The P85 form does not mean that you have an NT tax code assigned to you and you will most likely have the emergency tax code 1257L, which means you can earn £12,570 of UK income before being taxed.

The NT code can only apply to specific income sources and can only be applied for in specific circumstances. One of these circumstances is for non-UK residents with UK source income who are resident in a country with a Double Taxation Agreement (DTA) with the UK.

This is of particular interest for residents of countries where there are beneficial tax regimes in relation to overseas pension income, for example the 7% flat tax regime in Italy, NHR scheme in Portugal or Cyprus’s equivalent scheme, but also to residents of any country with lower tax rates on overseas pension income than in the UK.

However, it will depend on the specific DTA that country has with the UK on whether you are able to apply for an NT tax code for your pension income.

Once you have confirmed that your country of residence has a suitable DTA with the UK you then need to put your UK pension into drawdown. At this point you should also check that your pension provider will be able to implement making income payments with the NT tax code applied. In many cases it makes sense to move to a SIPP provider which is set up to deal with non-UK residents. Get in touch for more information on those options.

If you are still UK resident, planning to move abroad and over 55 years of age you should consider taking your Pension Commencement Lump Sum (PCLS), the 25% tax free lump sum, which could be taxable in the country you plan to move to. Once you have taken the PCLS the remaining 75% of your pension will be put into drawdown.

If you are already non-UK resident and your pension is not in drawdown, you will need to carefully consider your options according to how you will be taxed in your country of residence on the PCLS.


Which form do I use to apply for an NT code?

Once PCLS has been taken, if you wish to have the NT tax code applied to your pension you will need to start drawdown. If you have the 1257L tax code, you can take £1040 per month without having UK tax applied. So you might choose to take a withdrawal from the pension of £1040, then complete the Double Taxation Relief form, or DT Individual form, with the details of your pension.

The complication with the DT Individual form is that once completed with your details you will need to submit it to your local tax authority who will need to stamp and sign the form, confirming you are indeed tax resident and subject to tax on that income in that country.

In theory, your local tax authority will then forward that form onto HMRC. However, in some cases you may also be able to send the completed form yourself, which is preferable in many countries to avoid lengthy delays.

Once HMRC have approved the request, they will then send a communication to your pension provider that they can apply the NT code to your pension drawdown and you will be able to enjoy flexi-access drawdown with no UK taxes being withheld at source.


As independent financial advisors we adhere to UK standards of transparency and fees. We work with UK pension providers who cater especially for non-UK residents and are more helpful and accommodating in navigating tax matters. A common problem these days, which has been made worse by Brexit, is getting help from UK pension companies as a non-resident. The larger organisations are usually quite lacking in personal service. Working with advisors like us and using a UK pension designed for non-residents will eliminate a lot of the headaches of receiving your UK pension overseas.

If you need help with your UK pension as well as other financial planning matters as an expat then please get in touch with us via the form below.

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