Withdrawing your UK retirement savings while living abroad can be more complex than many realise. The moment you become an expat, your tax position changes — and so do the rules that govern how your pension income, savings, and investments are treated.
Without proper planning, you could find yourself exposed to unnecessary income tax, capital gains tax, or even inheritance tax. However, with a clear strategy, you can take full advantage of the available allowances and ensure more of your hard-earned wealth remains yours.
At Blacktower Financial Management, we specialise in helping UK expatriates manage, protect, and withdraw their retirement savings efficiently across borders. In this guide, we explain how UK retirement income is taxed and explore practical strategies that can help you maximise your net retirement income.
Understanding Your Retirement Income Sources
For most UK expats, retirement income comes from several different pots. Each is taxed differently, so it’s important to understand the options before planning withdrawals.
The main sources are:
- State Pension
- Workplace pensions (Defined Benefit or Defined Contribution)
- Personal pensions, including SIPPs
- Investment and savings accounts, such as ISAs, GIAs, and offshore bonds
1. The UK State Pension
The UK State Pension is available from age 66, rising to 67 between 2026 and 2028, depending on your date of birth. Entitlement is based on your National Insurance (NI) contributions, and you typically need at least 10 qualifying years to receive any payment.
Even if you’ve spent time working overseas, you may still qualify for a State Pension by paying voluntary NI contributions or combining UK contributions with those made in certain other countries under reciprocal agreements.
State Pension income is taxable in the UK, though how and where it is taxed depends on your residency and the double-taxation treaty in place between the UK and your country of residence.
2. Workplace Pensions
Most employers now offer a workplace pension. There are two primary types:
- Defined Benefit (DB): Sometimes known as a “final salary” pension, this guarantees a specific income for life, based on your salary and years of service.
- Defined Contribution (DC): Both you and your employer contribute to an investment fund. The amount available at retirement depends on investment performance and contributions.
DB schemes provide certainty, while DC schemes offer flexibility and growth potential. Both types are taxable when benefits are drawn.
3. Personal Pensions and SIPPs
Personal pensions — particularly Self-Invested Personal Pensions (SIPPs) — are popular among UK expats because they offer flexibility, broad investment choice, and the ability to consolidate multiple pension pots.
SIPPs allow you to:
- Access your pension from age 55 (rising to 57 in 2028)
- Take 25% of your fund tax-free, up to the Lump Sum Allowance
- Draw income flexibly or purchase an annuity
For expatriates, SIPPs can be an efficient way to manage currency exposure, maintain investment control, and plan income around changing tax residency.
4. Investments and Savings Accounts
Many retirees supplement their pension income with investments or savings, including:
| Type | Description |
| ISAs | Tax-efficient investment accounts available to UK residents, allowing up to £20,000 in annual contributions. Withdrawals are free from income and capital gains tax. |
| GIAs (General Investment Accounts) | Flexible accounts with no contribution limits, though gains and income are taxable. |
| Offshore Bonds | Insurance-based investment structures that offer tax-deferred growth and the ability to withdraw funds gradually under the 5% tax-deferred allowance. |
While ISAs are available only to UK residents, offshore bonds and some GIAs remain accessible to expatriates and can be structured for efficient cross-border wealth management.
How UK Retirement Income Is Taxed
Income Tax
Most pension withdrawals — including from the State Pension, workplace pensions, and SIPPs — are classed as income.
Every individual has a tax-free personal allowance of £12,570, after which income is taxed at 20%, 40%, or 45%, depending on your total earnings.
A valuable benefit is the ability to withdraw up to 25% of your pension savings tax-free, across all your pensions combined, up to the Lump Sum Allowance (LSA) of £268,275. Any withdrawals beyond this are taxed at your marginal rate.
For UK non-residents, taxation depends on the double taxation agreement between the UK and your country of residence. Many treaties allow pensions to be taxed only in your country of residence, potentially lowering your effective rate.
Inheritance Tax (IHT)
Pensions have traditionally fallen outside the scope of UK inheritance tax, but future reforms mean certain pension death benefits may be brought into the taxable estate.
Currently, your estate up to £325,000 can be passed to beneficiaries tax-free, with anything above taxed at 40%. Assets such as ISAs, GIAs, and offshore bonds usually form part of your estate unless held in an appropriate trust structure.
Placing certain assets — like offshore bonds — into trust can help mitigate inheritance tax exposure and ensure efficient wealth transfer to your beneficiaries.
Capital Gains Tax (CGT)
While pensions, ISAs, and offshore bonds are protected from CGT, investments in a GIA are not.
Each individual has an annual CGT exemption of £3,000 (2025/26). Gains above this are taxed at 18% for basic-rate taxpayers and 24% for higher or additional-rate taxpayers.
By managing sales strategically and realising gains within your annual allowance, you can minimise or avoid CGT altogether.
Tax-Efficient Withdrawal Strategies
Reducing tax on retirement income isn’t about avoiding tax — it’s about using the available allowances intelligently and withdrawing money in the right order, from the right places.
1. Maximise Your Tax-Free Lump Sum
You can take up to 25% of your pension tax-free, subject to the £268,275 Lump Sum Allowance.
For example:
- £100,000 pension → £25,000 tax-free
- £1,000,000 pension → £250,000 tax-free
- £2,000,000 pension → capped at £268,275 tax-free
Beyond that, further withdrawals are taxable as income, so redirecting additional savings into ISAs or offshore bonds may offer more tax-efficient long-term growth.
2. Apply the Four-Box Principle
The Four-Box Principle helps retirees combine income from four types of assets, each with its own tax treatment:
- Pensions/SIPPs — Use your £12,570 personal allowance and draw down within lower tax bands.
- Offshore Bonds — Withdraw up to 5% per year of the original investment tax-deferred.
- ISAs — Withdraw tax-free at any time if you’re UK resident.
- GIAs — Utilise annual CGT and dividend allowances for efficient withdrawals.
By blending income from these sources, you can reduce your effective tax rate — sometimes to zero — while maintaining flexibility and liquidity.
3. Use Reliefs and Allowances
Several UK reliefs can further improve efficiency:
- Top-Slicing Relief: Spreads gains from offshore bond encashments over the years the bond was held, preventing large one-year tax spikes.
- Time-Apportionment Relief: Allows non-UK residents to exclude gains made during periods spent abroad from UK tax calculations.
- Personal Savings Allowance: Lets you earn up to £1,000 (basic rate) or £500 (higher rate) of interest tax-free.
- Dividend Allowance: Allows £500 per year of dividend income tax-free.
A professional adviser can ensure these allowances are used in the most effective order.
4. Opt for a Flexible Drawdown
Instead of taking large withdrawals all at once, a phased drawdown can keep you within lower tax brackets. You can take smaller, regular amounts — for example, quarterly or annually — to manage income more efficiently.
This approach preserves pension capital, allows continued investment growth, and provides greater flexibility to respond to market conditions or changing lifestyle needs.
Plan Ahead to Protect Your Wealth
Tax rules affecting pensions and retirement income have changed significantly in recent years — and further reforms are expected. The end of the Lifetime Allowance, the new Lump Sum Allowance limits, and future inheritance tax changes all mean that proactive planning is more important than ever.
At Blacktower Financial Management, we help expatriates across Europe and beyond structure their pensions, investments, and withdrawals for maximum efficiency. Our advisers specialise in cross-border financial planning — helping clients understand how factors such as residency and regulatory considerations may influence their overall wealth management strategy. Where appropriate, we work alongside independent tax specialists to ensure clients receive the necessary tax guidance for their personal circumstances
Book Your Complimentary Consultation
Drawing income from UK pensions while living overseas requires careful planning. In a consultation with a Blacktower adviser, you can:
- Discuss how your pension and investment arrangements may be affected by cross-border rules Create a bespoke retirement withdrawal strategy
- Learn how to use allowances and structures like the Four-Box Principle
Consider ways to help protect and manage your wealth for future generations
This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice or investment research. Investing involves risk. 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. You should seek independent advice from a qualified tax professional regarding your personal circumstances before taking any action. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.