How to Use International SIPPs and Offshore Bonds for Expat Clients

Managing Retirement Wealth Across Borders

Cross-border retirement planning requires more than simply saving into a pension or investment account. It demands careful coordination of three key forces:

1. UK pension rules and disciplined saving.
2. Life policy wrapper rules that allow tax charges to be timed.
3. Residence-based taxation, now changing significantly from April 2025.

For globally mobile clients, this combination may make it potentially beneficial to separate retirement capital into two parts:

• what belongs inside a UK pension (such as an International SIPP), and
• what should sit within an offshore investment bond (life policy wrapper).

Together, they can form the foundation of a flexible, tax-efficient structure for those living abroad — particularly for those who may one day return to the UK.

---

What Makes an International SIPP Different?

An International SIPP (Self-Invested Personal Pension) is a UK-registered pension run by an FCA-authorised operator but designed for clients living overseas. Providers such as Morningstar, Novia Global and IFGL Pensions are among those catering to expatriate investors.

For expats, the benefits include:

• UK regulatory protection while living abroad.
• Multi-currency functionality — allowing both contributions and withdrawals in different currencies.
• International access, with the ability to receive funds to non-UK bank accounts.

However, many UK-based IFAs and pension providers prefer not to deal with non-UK residents, often due to compliance and tax complexities. This is where internationally regulated advisers play a crucial role — working alongside local IFAs or tax specialists to coordinate client outcomes rather than compete for them.

As one adviser aptly puts it:

“Working with an international adviser isn’t giving away your client — it’s enhancing their experience.”

---

Tax Efficiency and the Importance of the NT Code

When a double tax treaty between the UK and your country of residence gives taxing rights on pensions to that other country, your SIPP provider can apply HMRC’s NT (no tax) code so that payments are made gross.

Without this, your first pension withdrawals may be taxed under emergency PAYE, potentially withholding thousands in UK tax unnecessarily. Coordinating drawdown schedules and NT coding avoids these cashflow pitfalls.

Case example:

• A Saudi-based executive withdrew a large SIPP lump sum believing his pension would be taxed only in Saudi Arabia.
• The payment was made under emergency tax, creating a six-figure UK tax charge.
• After specialist intervention, the tax was reclaimed — but only after months of administration.

Contrast this with another client in the UAE who applied for the NT code before taking withdrawals — using a small test payment to confirm its application. The process took time, but avoided the same costly error.

These examples underline why international coordination matters — and why even UK-registered pensions require careful cross-border handling.

---

Should Expats Consolidate Their Pensions?

Many expats still hold multiple dormant UK pension pots, creating inefficiencies and limited oversight. Consolidating into a single International SIPP brings the usual benefits of consolidation — transparency, investment choice and control — alongside additional advantages for non-UK residents:

• Currency management (reducing exposure to GBP fluctuations).
• Simplified administration when changing residence.
• Flexible access and estate planning options.

For expats not planning to return to the UK for several years, this approach can also offer important tax planning advantages depending on local regulations and double taxation agreements.

---

The Role of the Offshore Investment Bond

An offshore investment bond (sometimes called a life policy wrapper) complements the SIPP by providing tax deferral and withdrawal flexibility.

Typically domiciled in the Isle of Man or Ireland, these structures allow income and gains to roll up without annual UK tax — with liability generally triggered only when a chargeable event occurs, such as:

• full or partial surrender,
• assignment,
• death, or
• exceeding the 5% annual withdrawal allowance.

Key advantages include:

• Tax deferral: No annual UK income or capital gains tax while funds grow inside the bond.
• 5% withdrawal allowance: Up to 5% of the original investment can be taken each year, for up to 20 years, without immediate UK tax.
• Time apportionment and top-slicing: For returning UK residents, these reduce the tax burden by spreading gains across non-UK residency periods.
• Segmentation: Bonds are divided into smaller policies, allowing ownership transfers (for example, to a spouse or child) and further estate planning opportunities.
• Inheritance tax mitigation: Many providers offer cost-effective trust options to shelter or transfer wealth efficiently.

It’s important to review these structures before repatriating to the UK. If a bond is classed as a Personal Portfolio Bond (PPB) on return, it could face a 15% annual deemed gain. This can often be avoided by endorsing the policy to a collective version before the next policy anniversary — not the UK tax year, as commonly misunderstood.

---

Why Timing and Sequencing Matter

Combining an International SIPP and an offshore bond gives flexibility — but only when managed with careful timing:

• Temporary non-residence rules: Returning to the UK within five calendar years (or effectively six tax years) can trigger UK tax clawback on certain income and gains realised while abroad.
• Foreign Income and Gains (FIG) regime (from 6 April 2025): New arrivals to the UK may qualify for four years’ exemption on foreign income and gains — but must seek specialist tax advice before opting in.
• Residence-based inheritance tax (from 6 April 2025): UK IHT will apply to worldwide assets after 10 years of UK residence within a 20-year period.
• Pension IHT exposure (from April 2027): More pension death benefits are expected to fall within the IHT net.

Understanding how these rules interact can save significant sums and avoid inadvertent traps when changing residence.

---

Common Mistakes to Avoid

Even financially sophisticated expats can fall foul of UK and international tax interaction. The most frequent missteps include:

• Making small “test” withdrawals from a SIPP and triggering the Money Purchase Annual Allowance (MPAA).
• Confusing a bond policy anniversary with the UK tax year and missing the endorsement deadline.
• Assuming government service pensions qualify for NT coding (they usually don’t).
• Surrendering a bond immediately on return to the UK without modelling top-slicing and time apportionment relief.

Each of these can result in avoidable tax liabilities and lost allowances.

---

The Blacktower Perspective

Returning UK expats can build a resilient, tax-smart retirement plan by aligning their pensions and investments strategically:

• International SIPP – consolidates scattered pots, enables multi-currency flexibility and allows tax-efficient drawdown under the right treaty.
• Offshore Investment Bond – defers tax, offers flexible income and supports long-term inheritance planning.

At Blacktower, our experienced international advisers work with clients and local tax partners to structure retirement wealth across jurisdictions — ensuring every element is compliant, coordinated, and optimised for life abroad and eventual repatriation.

---

Important Notice:
Tax treatment depends on individual circumstances and may change in future. This article is for general information purposes only and does not constitute personalised financial or tax advice. Always seek regulated financial advice before taking any action.

---

Plan your cross-border retirement with confidence.