The Smart Way to Move Your Pension Overseas: QROPS Transfer Guide 2025

UK pensions will face a 40% inheritance tax after death starting in 2027. Did you know that?

The UK Autumn Budget brings this worrying change, among other major effects on QROPS pension transfers. Currently, UK inheritance tax doesn't apply to UK pensions and QROPS as they stay outside your estate. This benefit will end in a few years.

Before you think over a QROPS pension transfer, you need to understand these new developments. The tax system has changed from being domicile-based to residence-based. You must also live in the same country as the QROPS to avoid the Overseas Transfer Charge.

The timing matters more than ever for UK expats who need QROPS pension transfer advice. UK inheritance tax will apply only to your UK assets once you've lived outside the country for 10 out of the last 20 years. Scheme administrators must be UK residents from April 2026. This requirement encourages many expats to explore International SIPPs as a more favourable option compared to QROPS UK pension transfers.

Infinite will guide you through the essential details about QROPS pension transfers in 2025. It will help you make smart choices about moving your pension overseas.

QROPS Transfer Guide 2025

What is a QROPS Pension Transfer?

British pension holders have a chance to move their retirement funds outside the UK tax system through a QROPS pension transfer. QROPS (Qualifying Recognised Overseas Pension Scheme) is a 2006-old pension arrangement outside the UK that meets specific HMRC requirements.

Definition and purpose of QROPS

British legislation introduced QROPS in April 2006 because of EU human rights requirements about freedom of capital movement. The main goal was to help people who permanently leave the UK take their pension savings to their new country.

Foreign pension schemes must follow strict rules to qualify as QROPS. These rules make them similar to UK registered pension schemes and include:

• Being set up and regulated in an eligible country

• Restricting access to pension benefits before age 55

• Following rules similar to those governing UK pension schemes

• Agreeing to report payments to HMRC for monitoring purposes

Starting in April 2017, a rule imposes a 25% tax charge on QROPS transfers unless specific conditions are met. HMRC gets between 10,000 and 20,000 QROPS transfers yearly, suggesting they remain popular despite rule changes.

Who typically uses QROPS?

QROPS pension transfers work well for several groups:

British citizens who have permanently relocated abroad, aiming to retire there after amassing a UK pension fund, find QROPS beneficial. People born outside the UK who built up benefits in a UK pension scheme can also move their pension offshore if they plan to retire elsewhere.

Non-UK nationals find QROPS helpful when they've worked in Britain and built up pension benefits but plan to retire somewhere else. QROPS helps UK expats who are non-residents for tax purposes, UK residents planning to move within 12 months, or anyone planning retirement abroad.

People close to the Overseas Transfer Allowance limit (£1,073,100 for the 2025/26 tax year) might use a QROPS to reduce future tax bills.

How QROPS compares to UK pensions

QROPS gives expats benefits that UK pensions don't offer. You won't pay UK taxes on pension income once your funds move into an HMRC QROPS, as long as you pay tax in your new country.

You'll get more investment choices with QROPS than UK pensions. This wider range of international market options helps protect against currency changes.

QROPS lets you hold and receive pension funds in different currencies (GBP, USD, EUR), which saves money on conversion costs. Your QROPS funds usually stay free from UK inheritance tax, though you might still pay inheritance tax in your country of residence.

All the same, QROPS transfers come with risks. Tax charges between 40% and 55% might apply if transfers don't meet HMRC's rules. Since 2017, most transfers face a 25% Overseas Transfer Charge unless you live in the same country as the QROPS, both you and the QROPS are in the European Economic Area, or your employer provides the QROPS.

Moving multiple UK pensions into one QROPS makes management easier, especially if you're not planning to stay in the UK. Yet many expats might do better with International SIPPs, which often cost less than QROPS schemes that usually charge £1,000–£1,500 a year plus setup fees.

Key Tax Changes in 2025

UK tax reforms have changed the map for pension holders who want to transfer their QROPS. These changes mean you need to carefully evaluate your decision to move your pension overseas.

Inheritance tax changes for UK pensions

The Autumn Budget 2024 brought major changes to pension inheritance. Starting April 6, 2027, the value of most unused pension funds and death benefits will become part of a person's estate for Inheritance Tax (IHT) calculations. UK pensions and QROPS currently stay outside your estate for IHT, but this protection will end soon.

These changes will affect many people. Government figures show about 10,500 estates will pay IHT for the first time, and 38,500 estates will face higher IHT bills than before. Adding pension assets to estate valuations will raise the average IHT bill by £34,000.

The government's original plan made pension scheme administrators responsible for reporting and paying IHT. They changed their mind after consultation, and now personal representatives handling the estate will take this responsibility. Death in service benefits from registered pension schemes won't be affected by these changes.

Moving from domicile- to residency-based taxation

The UK has made a fundamental change from domicile-based taxation to residency-based taxation, which took effect on April 6, 2025. This represents the most significant change to UK inheritance tax we've seen in decades.

The new system labels you as a "long-term UK resident" if you've been a UK tax resident for at least 10 out of the previous 20 tax years. This status means all your worldwide assets—not just UK-based ones—will face UK inheritance tax.

Leaving the UK doesn't immediately free you from this tax liability. You'll stay subject to UK IHT on worldwide assets for a "tail" period of 3–10 years, depending on how long you live in the UK.

How it affects long-term UK residents and expats

Your residency status determines how these changes will affect you. Long-term UK residents will see similar treatment for UK pensions and QROPS—both could face 40% IHT after death, while beneficiaries pay up to 45% income tax on withdrawals.

Expats might find some advantages. After living outside the UK for 10 out of the last 20 years, UK IHT only applies to your UK assets. A UK pension would still attract UK IHT, but a QROPS usually stays outside this scope.

This difference matters most for people with large pension savings they plan to leave untouched during retirement. Some experts suggest paying the 25% Overseas Transfer Charge might save money compared to the 40% UK Inheritance Tax.

These tax changes should shape your decision about QROPS pension transfers. Some expats benefit from keeping their existing QROPS, while others might do better with International SIPPs, depending on their situation.

Understanding the Overseas Transfer Charge

The Overseas Transfer Charge (OTC) is an important factor to consider if you are contemplating a QROPS pension transfer. HMRC has made major changes to this tax mechanism. These changes have altered the map for UK pension holders who want to move their funds abroad.

What is the 25% OTC?

The Overseas Transfer Charge imposes a 25% tax on specific transfers from UK registered pension schemes to QROPS. Your retirement savings could drop by a quarter because this hefty charge applies to the entire pension transfer value.

The OTC targets:

• Transfers from registered UK pension schemes to QROPS

• Onward transfers from one QROPS to another QROPS

• Transfers where circumstances change within a five-year "relevant period" after the original transfer

You could face retroactive charges if your residency status changes within five full UK tax years after the original transfer, even if that transfer was initially exempt. HMRC has collected over £100 million in OTC penalties from people moving their UK pensions overseas.

New residency rules for QROPS transfers

Transfers to QROPS located in the European Economic Area (EEA) and Gibraltar were exempt from the Overseas Transfer Charge (OTC) until October 30, 2024, regardless of your place of residence. This exemption no longer exists.

The 25% charge will not apply if you live in the same country where your QROPS is based. UK residents can't use QROPS anymore to gain multiple tax-free allowances. Sarah's situation exemplifies this change: since she lives in Spain and wants to transfer £250,000 to a Malta QROPS, she will now incur the 25% charge, whereas she would have previously been exempt.

Why Malta and Gibraltar are no longer ideal

MAlta and Gibraltar were once popular destinations for QROPS transfers. Their favourable tax treatment and EEA status made transfers exempt from the OTC. The October 2024 rule changes have stripped these jurisdictions of their appeal for most UK expats.

The math is simple – your pension transfer to Malta or Gibraltar will cost you 25% unless you live there. International SIPPs (Self-Invested Personal Pensions) have become more attractive for many expatriates. SIPPs come with lower charges than QROPS schemes and avoid the OTC completely. QROPS often cost between £1,000 and £1,500 in annual fees.

Current QROPS holders should assess their position carefully. The five-year "relevant period" means residency status changes could still affect your tax situation.

Should You Still Consider QROPS?

Recent changes to QROPS regulations have left many expats wondering if these pension structures are still worth it. Your personal situation and future plans will determine if it's right for you.

When QROPS still makes sense

QROPS transfers can still work well in specific cases. People who have moved away from the UK permanently can benefit from these structures, especially when they've lived abroad for 10 out of the last 20 years. UK inheritance tax applies only to your UK assets at this point. Your QROPS stays outside this scope and could save you money on inheritance tax compared to UK pensions.

QROPS lets you receive pension payments in a foreign currency and helps you avoid exchange rate risks and conversion fees. These structures provide improved estate planning options for passing pension benefits to your loved ones.

Are you looking for assistance in managing your UK pension while living abroad? Are you an expat with a pension worth over £150,000? Arrange your complimentary initial consultation today.

Risks of holding or transferring to QROPS

QROPS come with several key risks, among other benefits. The most significant concern is the 25% Overseas Transfer Charge, which applies unless you reside in the same country as your Qualifying Recognised Overseas Pension Scheme (QROPS). This hefty tax changes the maths for many people.

You'll pay more in yearly fees with QROPS than other options—usually £1,000 to £1,500 just for the structure. These options often include costly offshore insurance bonds, which come with their own fees.

The complexity of tax rules varies between the UK and the country where you reside. QROPS providers might lose their HMRC recognition status. The five-year rule could trigger backdated charges if you move to another country.

How to review your current QROPS

The changing rules mean that you should carefully review your existing QROPS. Start by checking if your scheme is still on HMRC's recognised list, but remember that being listed doesn't guarantee everything's okay.

High fees can eat into your returns. Take time to review your investments and see how they stack up against similar options. Watch out for red flags like random portfolio changes or investments with unclear promises.

An International SIPP might now give you more flexibility, lower costs, and solid investment choices without OTC risks.

Exploring Alternatives: SIPPs and Other Options

International SIPPs have become a better choice than QROPS due to recent regulatory changes. Many expats are taking a fresh look at their pension options.

What is an International SIPP?

An International SIPP (Self-Invested Personal Pension) helps non-UK residents manage their UK retirement savings from abroad. The UK's FCA regulates these pensions, which gives you protection while letting you invest worldwide in multiple currencies. These work just like regular UK SIPPs but come with extra features that expats need.

Benefits of SIPPs over QROPS

You'll save money with international SIPPs. QROPS charges yearly fees of £1,000–£1,500 plus setup costs, while SIPPs cost nowhere near as much to manage. You won't have to pay the 25% Overseas Transfer Charge either. SIPPs also let you invest in more options worldwide – from stocks and bonds to ETFs and commercial property.

How to transfer to a SIPP from abroad

Start by checking the terms of your current pension. Then follow these steps:

1. Pick a provider who offers International SIPPs to non-UK residents

2. Fill out transfer forms and prove you live overseas

3. Let your current pension administrator move the funds

Are you looking to manage your UK pension while living overseas? Do you have a pension worth over £150,000? Book your free initial consultation today.

Tax planning with SIPPs for expats

Smart tax planning with International SIPPs depends on understanding tax agreements between the UK and your new home country. Offshore pensions are subject to UK inheritance tax from April 2025. SIPPs still work well for tax because investments grow without income and capital gains taxes. You might qualify for an "NT" (No Tax) code from HMRC, which means you could receive pension income without UK tax taken out.

Conclusion

The 2024 tax reforms have made pension transfers overseas significantly more complex. UK expats need to understand their options between QROPS and International SIPPs in order to protect their retirement savings from heavy taxation. A radical alteration to residence-based taxation and upcoming inheritance tax changes affects how UK expats make these crucial decisions.

UK inheritance tax only applies to your UK assets after you've lived outside the country for 10 out of 20 years. Moving your pension to a QROPS in your country of residence might save your beneficiaries from paying a hefty 40% tax. The 25% Overseas Transfer Charge still applies unless you live in the same country as your QROPS. Previous EEA exemptions that made Malta and Gibraltar popular choices no longer exist.

International SIPPs are worth thinking over because they usually cost less than QROPS. They offer similar investment flexibility and multi-currency options. You can avoid the Overseas Transfer Charge completely whatever country you live in.

Your specific situation will determine the best path forward. Your permanent residence plans, pension value, inheritance goals, and currency requirements are vital parts of this decision. Smart planning around your future residency status matters because of the five-year relevant period for QROPS transfers.

These pension transfer decisions are time-critical. You have a limited time until 2027 to reorganise your retirement savings before inheritance tax changes take effect. Without doubt, getting professional financial advice that matches your specific needs is the smartest first step before moving any pension funds abroad.