It is one of the first questions people ask when they start planning a retirement overseas, and it is a good one. You have spent decades building your pension. The last thing you want is to lose a slice of it to tax you did not need to pay.

The short answer? It depends on where you move, what type of pension you have, and whether the paperwork is done properly. Here is what you need to know.

Leaving the UK does not automatically stop UK tax

Many people assume that once they move abroad, HMRC loses interest in their pension. Not quite.

UK pensions are paid from the UK, so by default they are taxed in the UK. Your pension provider will usually deduct income tax at source through PAYE, just as they would if you still lived in Manchester or Milton Keynes.

Whether that tax stays with HMRC, or whether you can have your pension paid gross and taxed in your new home country instead, comes down to one thing: the double taxation agreement.

Double taxation agreements do the heavy lifting

The UK has tax treaties with more than 130 countries, including Spain, France, Portugal, and most popular retirement destinations. These agreements decide which country has the right to tax your pension, so you are not taxed twice on the same income.

In most cases, the treaty gives taxing rights to the country where you live. So if you retire to Spain, your private or workplace pension is usually taxable in Spain, not the UK.

But this does not happen automatically. You need to apply to HMRC, typically using a form certified by the tax authority in your new country. Once approved, HMRC issues an NT (no tax) code to your pension provider, and your pension is paid without UK tax deducted.

Until that code is in place, UK tax will keep coming off your pension. You can reclaim it, but it is far better to get ahead of it.

State Pension follows its own rules

Your UK State Pension can be paid anywhere in the world, and it is paid without UK tax deducted. Where you pay tax on it depends on the treaty with your country of residence.

One thing worth knowing: in some countries, your State Pension is frozen at the rate you first receive it, with no annual increases. If you retire within the EU, the increases continue. In countries like Australia or Canada, they do not. It is a detail that catches many retirees by surprise. 

Government pensions are the exception

If you have a pension from government service, perhaps as a teacher, civil servant, or NHS worker in certain schemes, the rules often flip. These pensions usually remain taxable in the UK, regardless of where you live, unless you are a national of your new country.

This is exactly the kind of detail where two people with similar pensions can end up with very different tax bills.

What about the 25% tax-free lump sum?

In the UK, you can normally take up to 25% of your pension as a tax-free lump sum. Abroad, that famous perk may not survive the journey.

Many countries do not recognise the UK tax-free lump sum and will tax it as ordinary income. Spain and France, for example, treat it very differently to HMRC. Timing matters here. Taking your lump sum before or after you become tax resident abroad can change the outcome significantly.

A quick recap

• Most private and workplace pensions become taxable in your new country, once you complete the right paperwork with HMRC
• Your State Pension is paid gross, but may be frozen depending on where you live
• Government service pensions usually stay taxable in the UK
• The 25% tax-free lump sum may be taxed abroad, so plan the timing carefully

The right advice makes all the difference

Pension tax across borders is rarely complicated because of any single rule. It is complicated because the rules of two countries interact, and small decisions about timing and structure can have a lasting impact on your retirement income.

If you are planning a move abroad, or you have already made one, it is worth getting clarity before you start drawing your pension, not after. A short conversation now can save years of unnecessary tax later.

We are expats too, and we help people navigate exactly these decisions every day. If you would like to understand what your move means for your pension, book an obligation-free call with one of our advisers. No jargon, no pressure, just clear answers.