Help I have a SIPP but am not a UK resident – What do I need to do?

Is there an issue for non-residents who have a UK SIPP?

Pension funds have long enjoyed a favourable status for UK inheritance tax (IHT). Most registered pension schemes are discretionary and are currently outside the scope of UK IHT. This has made pensions a very tax efficient way of passing wealth to chosen beneficiaries.

However, from 6 April 2027, any remaining funds within a pension on an individual’s death will form part of the deceased individual’s estate for IHT purposes. This may have an impact on people who emigrated from the UK many years ago in ways they don’t anticipate.

But is my estate affected by IHT if I’m not UK resident?

To determine how your estate is affected by IHT, you need to ascertain if you are a long-term resident (LTR) or not. You can find more information on that here. An important factor to note is that someone can be an LTR for several years after they leave the UK.

For LTRs, their worldwide estate will be subject to UK IHT, including assets in pension funds and SIPPs. If tax is payable in another jurisdiction as well, the personal representatives of the scheme member will need to look at double tax treaties or unilateral relief to mitigate the potential impact of double taxation.

For non-LTRs, only the individual’s UK situs assets will be subject to UK IHT. Assets held in another jurisdiction would be considered as “excluded” property and outside the scope of IHT.

Does being non-resident have an impact on the IHT liability of a UK pension/UK SIPP?

As a UK SIPP or pension fund is a UK situs asset, it would be within the scope of IHT. The value of the fund and the IHT allowances available to an estate would determine whether the pension would suffer any IHT charge.

Can you still nominate specific beneficiaries to receive unused pension funds?

Yes – a scheme member can make an effective nomination whether or not they are UK resident or LTR. Those nominations remain very important for discretionary schemes. It is only the IHT position on the funds remaining at death that has changed, as the funds are now within the scope of UK IHT.

Can the estate’s allowances such as the nil rate band be used against the value remaining in a pension fund?

Yes – the allowances available to the estate will generally be pro-rated between the estate and the pension fund. If there are no other UK situs assets in a non-LTR’s estate, the full nil rate band may be available to set against the funds in the pension (depending on the scheme member’s personal circumstances). In addition, exemptions such as the spouse exemption may be available in certain circumstances.

Who will deal with the IHT compliance for a non-resident’s unused pension funds or SIPPs?

The position has not been finalised, but the current proposal is that the scheme member’s personal representatives (usually their executors) will be responsible for determining the pension schemes of which the deceased was a member, contacting the pension scheme administrators and obtaining the value of the relevant scheme(s). The personal representatives must then calculate the combined value of the free estate (ie that held outside the SIPP) and the pension funds, determine the allowances available and allocate them to the pension fund(s) and estate pro rata. This is an onerous task, with a tight timetable. Not only this, the personal representatives are jointly and severally liable for the IHT on the pension fund, alongside the beneficiaries of the pension.

It’s clear that there will be issues if a non-resident has no other assets in the UK and hasn’t appointed personal representatives: at the moment, it is not clear who will be responsible for liaising with HMRC and paying any IHT.

What about double tax treaties?

The UK has 10 bilaterally agreed double tax treaties in relation to IHT. These need to be looked at on a case by case basis to assess whether they can assist with the tax position of an estate, and which country has taxing rights.

Are there any other taxes to think about?

IHT is not the only tax to think about in relation to pensions. If the scheme member (whether LTR or non-LTR) dies over the age of 75, it is likely that payments to beneficiaries out of the pension scheme will be subject to income tax at the beneficiary’s marginal rates if the beneficiary is UK resident (note that this is different to being an LTR, and is based on the usual statutory residence test).

What does that mean pension scheme members should do now?

Every scheme member will need to take advice on their own position, and review the arrangements they currently have in place. In many cases, the advice may no longer be to retain the pension long term as a tax efficient fund, but there is no general rule for non-LTRs.

If you have any questions about the topics raised in this article then please get in touch with our expert team.