How Expats Can Avoid Unnecessary UK Pension Tax With an NT Code

For many British expatriates, moving abroad represents a new chapter of life — whether that’s enjoying retirement in the Algarve, building a career in Dubai, or relocating to the United States. But while your lifestyle may change, one thing that often follows you is your UK pension.

Unfortunately, thousands of expats continue to pay UK tax on their pensions unnecessarily. This happens because providers apply emergency tax at source, often without the pension holder even realising it. The solution is something called an NT (No Tax) code — a little-known but powerful tool that can help preserve more of your pension income

Here’s everything you need to know.

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The Problem: Emergency Tax You Shouldn’t Be Paying

When you withdraw from a UK pension — whether it’s a SIPP, final salary scheme, or defined contribution plan — your provider will usually apply PAYE (Pay As You Earn) tax. The system assumes you’re still a UK resident, so income tax is deducted automatically.

For someone who has already left the UK, this can create major problems:

• HMRC applies a generic “emergency” tax code, often 1257L Month 1.
• Tax can be withheld at 20%, 40%, or even 45%, depending on the size of your withdrawal.
• Large withdrawals are hit especially hard. For instance, if you take £50,000 from a SIPP, you could lose more than £20,000 immediately — money you may later have to reclaim.

Reclaiming is possible, but it means filing a UK tax return, waiting months for repayment, and repeating the process every year. For many expats, this becomes an exhausting cycle.

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The Solution: What Is an NT Code?

An NT code (No Tax code) is HMRC’s way of recognising that you:

• No longer live in the UK under its Statutory Residence Test
• Receive pension income from a UK scheme
• Live in a country with a Double Taxation Agreement (DTA) covering pensions

When HMRC issues an NT code, it tells your pension provider:

“This individual is not liable for UK income tax on their pension. Pay them gross.”

That means your pension is paid without UK tax deducted at source. You then declare and settle tax in your new country of residence, if applicable.

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Who’s Eligible for an NT Code?

You may qualify if you meet all of the following conditions:

• You are a non-UK tax resident under HMRC’s Statutory Residence Test.
• You receive UK pension income (SIPP, final salary, defined contribution, personal pension, or in some cases, the State Pension).
• You live in a country that has a DTA with the UK.

Some of the most common destinations covered include:

• USA
• France
• Spain
• UAE
• Saudi Arabia
• Oman
• Portugal
• Australia

Each treaty is different, but in most cases, the right to tax your UK pension shifts to your country of residence.

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What Happens If You Don’t Apply?

If you don’t have an NT code in place:

1. Your provider will continue to deduct UK tax at source.
2. You may face an immediate 20–45% hit on your withdrawals.
3. You’ll need to reclaim this by submitting a UK tax return, along with forms such as P55, P53Z, or P50Z, depending on your situation.

While the money is often recoverable, the process can be frustrating and time-consuming. Worse still, some expats never reclaim — leaving large sums unnecessarily with HMRC.

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How to Apply for an NT Code

The process involves several key steps:

1. Confirm non-residency
   HMRC will look at how many days you spend in the UK, along with your ties to property, work, and family.
2. Trigger a PAYE record
   You usually need to request a small pension payment (for example, £1,000) to open a PAYE record before HMRC can issue an NT code.
3. Complete the right form
   Most people use Form DT-Individual, but some countries require bespoke versions. The form declares your non-UK residency and pension income.
4. Provide proof of residency
   This is critical. You’ll need a Tax Residency Certificate from your local authority, such as:
   • IRS Form 6166 (USA)
   • Certificado de Residencia Fiscal (Spain)
   • Certificate from the Federal Tax Authority (UAE)
   • Certificate from the French Tax Office
   • Zakat, Tax and Customs Authority certificate (Saudi Arabia)
5. Submit your application
   Send the completed form and residency proof to HMRC. Processing typically takes 12–16 weeks.
6. Check with your provider
   HMRC sends the NT code directly to your pension scheme. Always confirm it has been applied before making a major withdrawal.

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Common Mistakes That Cost Expats Thousands

• Applying too late — withdrawing before your NT code is active can mean an unnecessary tax hit.
• Missing documentation — failure to include tax residency proof leads to delays or rejections.
• Using the wrong form — many expats mistakenly use the generic DT-Individual form when their country requires a specific version.
• Unclear residency — if your ties to the UK are not fully severed, HMRC may question your non-residency status.

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Which Pensions Qualify?

Most major UK pensions can be covered by an NT code, including:

• SIPPs (Self-Invested Personal Pensions) — drawdown, UFPLS, or annuity payments
• Workplace schemes — final salary, AVCs, defined contribution
• Personal pensions
• State Pension (in some cases, depending on the DTA)

Always check your country’s treaty with the UK to confirm the rules.

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Important: An NT Code Doesn’t Mean “No Tax Ever”

An NT code stops the UK from taxing your pension — but you still have obligations.

You must report your income in your country of residence and pay tax there if applicable. For example:

• In Portugal, pensions may be taxable under the general regime (after NHR closed to new applicants in 2024).
• In Spain, pensions are generally taxable as regular income.
• In the UAE, currently there is no personal income tax — meaning your pension may be paid free of tax entirely.

The key is ensuring compliance locally while avoiding unnecessary double taxation.

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Real-Life Example

One client relocated to Dubai and withdrew £70,000 from his SIPP. Because no NT code was in place, £28,000 was deducted in UK tax immediately.

With professional help, he reclaimed the funds — but the process took nearly six months. Going forward, we secured his NT code so every withdrawal is paid gross, saving time, stress, and cash.

This case highlights why proactive planning is essential.

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Apply Early, Save Big

The NT code process isn’t overly complicated, but it is slow. Waiting until after your withdrawal often means suffering the initial tax loss.

At Blacktower, we regularly assist expatriates with NT code applications, ensuring:

• Correct forms are completed
• Residency proof is obtained
• HMRC deadlines are managed
• Pension providers apply the NT code correctly

For many expats, this simple step can mean the difference between losing a significant portion of their retirement income and keeping it where it belongs — in their own account.

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Final Thoughts

If you’ve left the UK behind, your pension shouldn’t be taxed there unnecessarily. An NT code ensures that your pension is paid gross and that you only pay tax where you truly owe it.

Whether you’re in Miami, Madrid, or Muscat, applying for an NT code early can prevent costly mistakes, protect your wealth, and simplify your retirement planning.

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Blacktower’s cross-border financial advisers can help you understand your options, coordinate with tax advisers where appropriate, and ensure your pension planning aligns with your residency and retirement goals.

📞 Contact us today to book a no-obligation consultation.

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Disclaimer  This article is for informational purposes only and does not constitute investment, tax, or legal advice. The value of investments can go down as well as up, and you may not get back the amount originally invested. Past performance is not a reliable indicator of future results. Tax treatment depends on individual circumstances and may be subject to change. Always seek regulated financial advice before making any financial planning or investment decisions.