How to Avoid the 25% UK Overseas Transfer Charge on SIPP Transfers in 2025/2026 - Complete Guide
The 25% UK Overseas Transfer Charge (OTC) on SIPP transfers to overseas pensions is a major concern for British expats in the 2025/2026 tax year. Following HMRC’s rule tightening on 30 October 2024, many previously tax-efficient strategies for QROPS transfers are now heavily taxed or no longer viable.
This comprehensive guide explains the latest rules, legal ways to reduce or avoid the 25% charge, smarter alternatives for expats, and key considerations before making any pension transfer decisions.
Disclaimer: Pension rules are complex, and individual circumstances vary. Tax implications can be significant. This guide is for general information only. Always seek personalised advice from a regulated financial adviser specialising in cross-border UK pensions.
What Is the 25% Overseas Transfer Charge (OTC)?
The Overseas Transfer Charge (OTC) is a 25% tax applied when transferring funds from a UK-registered pension scheme, such as a SIPP, to a Qualifying Recognised Overseas Pension Scheme (QROPS).
Key points:
• The charge is calculated on the total transferred value.
• It is usually deducted by the UK scheme administrator before the funds reach the overseas scheme.
• The OTC may also apply to transfers between QROPS in certain cases.
• Introduced to prevent using offshore pensions to avoid UK tax.
Since the Lifetime Allowance was abolished on 6 April 2024, the new relevant limit is the Overseas Transfer Allowance (OTA), currently £1,073,100 for most people. Transfers above your remaining OTA are subject to the 25% charge, even if other exemptions might apply.
Major Rule Changes for 2025/2026
Significant shifts took effect following the Autumn Budget 2024, impacting pension transfers:
• EEA/Gibraltar exemptions removed: Transfers to QROPS in the EU or Gibraltar no longer avoid the OTC automatically.
• Residence alignment required: To avoid the 25% charge, you generally must be tax resident in the same country as the QROPS at the time of transfer.
• Transitional relief expired: Transfers requested before 30 October 2024 and completed by 30 April 2025 could benefit, but this window is now closed.
• Tighter compliance rules: From 6 April 2025, additional recognition and reporting conditions for overseas pension schemes apply.
Popular destinations like Malta, Ireland, and other EEA countries no longer guarantee exemption unless you are actually resident there. For expats in Spain, Portugal, France, UAE, the US, or Australia, transferring to a local QROPS while tax-resident there remains one of the few compliant ways to avoid the charge.
HMRC may monitor residence for up to 5 - 10 years post transfer, and changes in status can trigger retrospective charges.
Legitimate Ways to Avoid or Reduce the 25% OTC
There are no “loopholes.” Here are the main compliant strategies for 2025/2026:
1. Match Your Residence to the QROPS Country
• Be tax resident in the country where the QROPS is established (e.g., live in Australia and use an Australian QROPS).
• Transfers within your OTA are generally exempt.
• The QROPS must appear on HMRC’s current list (updated on GOV.UK).
• Evidence of residence is required by the scheme administrator.
2. Stay Within Your Overseas Transfer Allowance (OTA)
• Amounts up to your OTA (£1,073,100 standard) avoid the excess 25% charge.
• Residence alignment is still required to prevent the full OTC from applying.
3. Avoid a QROPS Transfer Altogether
• Keep your funds in a UK SIPP or another UK-registered scheme.
• Benefits: no OTC, continued UK tax advantages, access to FSCS protection, and potential IHT advantages.
• Many International SIPPs cater to non-UK residents with multi-currency accounts and global investment options.
4. Rare/Niche Exemptions
• Employer-sponsored overseas schemes or specific public service arrangements may offer different treatment.
• Military or Crown employees may qualify under special rules, but these are uncommon.
Warning: Artificially creating residence or structuring transfers to avoid the OTC is high-risk and may be considered tax avoidance.
Smarter Alternatives for UK Expats
For most British expats, alternatives to a QROPS transfer are safer and more flexible:
• International SIPP - UK regulated, no 25% charge risk, flexible drawdown from age 55 (57 from 2028), 25% tax-free lump sum, and often lower costs.
• Flexible UK Drawdown - Access funds as needed without moving them offshore.
• Local Host - Country Pensions - Build savings in your current country’s scheme while leaving UK pensions untouched.
• Currency & Estate Planning via UK Schemes - Multi currency options and beneficiary nominations replicate QROPS benefits without the tax hit.
Key Risks to Consider
• Local tax & reporting: Transfers may trigger host-country income tax, capital gains tax, or reporting requirements.
• Inheritance Tax (IHT): Overseas schemes can affect IHT compared to UK pensions.
• Currency & market risk: Moving funds exposes you to exchange rate fluctuations.
• Fees & investor protection: Overseas schemes may charge higher fees and offer less protection.
• HMRC compliance: Both you and the scheme must report transfers; failure risks penalties.
Final Advice for 2025/2026
The 25% Overseas Transfer Charge has made QROPS transfers costly for most expats unless they are resident in the target country.
For many, the smartest move is to retain your pension in a UK-based International SIPP, avoiding the charge while maintaining flexibility, tax benefits, and global access.
Every expat’s situation is unique - age, pension value, residence, health, family plans, and overall wealth all matter.
Ready to protect your pension and avoid unnecessary tax?
This comprehensive guide explains the latest rules, legal ways to reduce or avoid the 25% charge, smarter alternatives for expats, and key considerations before making any pension transfer decisions.
Disclaimer: Pension rules are complex, and individual circumstances vary. Tax implications can be significant. This guide is for general information only. Always seek personalised advice from a regulated financial adviser specialising in cross-border UK pensions.
What Is the 25% Overseas Transfer Charge (OTC)?
The Overseas Transfer Charge (OTC) is a 25% tax applied when transferring funds from a UK-registered pension scheme, such as a SIPP, to a Qualifying Recognised Overseas Pension Scheme (QROPS).
Key points:
• The charge is calculated on the total transferred value.
• It is usually deducted by the UK scheme administrator before the funds reach the overseas scheme.
• The OTC may also apply to transfers between QROPS in certain cases.
• Introduced to prevent using offshore pensions to avoid UK tax.
Since the Lifetime Allowance was abolished on 6 April 2024, the new relevant limit is the Overseas Transfer Allowance (OTA), currently £1,073,100 for most people. Transfers above your remaining OTA are subject to the 25% charge, even if other exemptions might apply.
Major Rule Changes for 2025/2026
Significant shifts took effect following the Autumn Budget 2024, impacting pension transfers:
• EEA/Gibraltar exemptions removed: Transfers to QROPS in the EU or Gibraltar no longer avoid the OTC automatically.
• Residence alignment required: To avoid the 25% charge, you generally must be tax resident in the same country as the QROPS at the time of transfer.
• Transitional relief expired: Transfers requested before 30 October 2024 and completed by 30 April 2025 could benefit, but this window is now closed.
• Tighter compliance rules: From 6 April 2025, additional recognition and reporting conditions for overseas pension schemes apply.
Popular destinations like Malta, Ireland, and other EEA countries no longer guarantee exemption unless you are actually resident there. For expats in Spain, Portugal, France, UAE, the US, or Australia, transferring to a local QROPS while tax-resident there remains one of the few compliant ways to avoid the charge.
HMRC may monitor residence for up to 5 - 10 years post transfer, and changes in status can trigger retrospective charges.
Legitimate Ways to Avoid or Reduce the 25% OTC
There are no “loopholes.” Here are the main compliant strategies for 2025/2026:
1. Match Your Residence to the QROPS Country
• Be tax resident in the country where the QROPS is established (e.g., live in Australia and use an Australian QROPS).
• Transfers within your OTA are generally exempt.
• The QROPS must appear on HMRC’s current list (updated on GOV.UK).
• Evidence of residence is required by the scheme administrator.
2. Stay Within Your Overseas Transfer Allowance (OTA)
• Amounts up to your OTA (£1,073,100 standard) avoid the excess 25% charge.
• Residence alignment is still required to prevent the full OTC from applying.
3. Avoid a QROPS Transfer Altogether
• Keep your funds in a UK SIPP or another UK-registered scheme.
• Benefits: no OTC, continued UK tax advantages, access to FSCS protection, and potential IHT advantages.
• Many International SIPPs cater to non-UK residents with multi-currency accounts and global investment options.
4. Rare/Niche Exemptions
• Employer-sponsored overseas schemes or specific public service arrangements may offer different treatment.
• Military or Crown employees may qualify under special rules, but these are uncommon.
Warning: Artificially creating residence or structuring transfers to avoid the OTC is high-risk and may be considered tax avoidance.
Smarter Alternatives for UK Expats
For most British expats, alternatives to a QROPS transfer are safer and more flexible:
• International SIPP - UK regulated, no 25% charge risk, flexible drawdown from age 55 (57 from 2028), 25% tax-free lump sum, and often lower costs.
• Flexible UK Drawdown - Access funds as needed without moving them offshore.
• Local Host - Country Pensions - Build savings in your current country’s scheme while leaving UK pensions untouched.
• Currency & Estate Planning via UK Schemes - Multi currency options and beneficiary nominations replicate QROPS benefits without the tax hit.
Key Risks to Consider
• Local tax & reporting: Transfers may trigger host-country income tax, capital gains tax, or reporting requirements.
• Inheritance Tax (IHT): Overseas schemes can affect IHT compared to UK pensions.
• Currency & market risk: Moving funds exposes you to exchange rate fluctuations.
• Fees & investor protection: Overseas schemes may charge higher fees and offer less protection.
• HMRC compliance: Both you and the scheme must report transfers; failure risks penalties.
Final Advice for 2025/2026
The 25% Overseas Transfer Charge has made QROPS transfers costly for most expats unless they are resident in the target country.
For many, the smartest move is to retain your pension in a UK-based International SIPP, avoiding the charge while maintaining flexibility, tax benefits, and global access.
Every expat’s situation is unique - age, pension value, residence, health, family plans, and overall wealth all matter.
Ready to protect your pension and avoid unnecessary tax?
Contact Callaghan Financial Services for a no-obligation discussion
Website: gcqrops.com
Email: QROPS@MSN.COM
WhatsApp Business: +34 698 243 745
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Facebook: GCQROPS
Website: gcqrops.com
Email: QROPS@MSN.COM
WhatsApp Business: +34 698 243 745
Facebook: Costa Blanca Property Costa del Sol Property
Facebook: Monaco
Facebook: GCQROPS