{"id":361781,"date":"2025-08-21T10:03:10","date_gmt":"2025-08-21T10:03:10","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/361781\/"},"modified":"2025-08-21T10:03:10","modified_gmt":"2025-08-21T10:03:10","slug":"tribunal-rules-expats-pension-withdrawals-were-tax-free","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/361781\/","title":{"rendered":"Tribunal rules expat\u2019s pension withdrawals were tax-free"},"content":{"rendered":"

A first-tier tribunal found that an individual\u2019s pension withdrawals made from his UK pension while resident in Portugal <\/a>were tax-free.<\/p>\n

On August 11, the tribunal accepted the appeal of Trevor Masters in his case against HMRC. <\/p>\n

The appeal related to the interpretation and application of the UK-Portugal Double Tax Convention – more specifically if withdrawals from Masters\u2019 Sipp, paid to him whilst he was resident in Portugal and non-resident in the UK, were taxable<\/a> in the UK or Portugal. <\/p>\n

\u00a36mn pension transfer<\/p>\n

Masters worked at Tesco for 32 years and amassed a DB pension pot of nearly \u00a36mn, which he transferred from the Tesco pension scheme to a Sipp in 2016.<\/p>\n

In 2019 Masters left the UK and moved to Portugal under the Non-Habitual Resident (NHR) regime.<\/p>\n

The regime (which has since been replaced with NHR 2.0) allowed individuals to benefit from certain tax exemptions in Portugal for a 10-year period, including for non-Portuguese pension income to be exempt from tax.<\/p>\n

In the 2019-20 tax year, more than \u00a33.5mn was withdrawn from the Sipp and was subject to UK tax of around \u00a31.5mn.<\/p>\n

One of the key areas of focus in the case was whether the pension payments were \u201cpaid in consideration of past employment\u201d.<\/p>\n

Article 17 of the UK-Portugal Double Tax Convention, says: \u201cAny pensions and other similar remuneration\u2009.\u2009.\u2009.\u2009paid in consideration of past employment to a resident of a contracting state and any annuity paid to such a resident shall be taxable only in that state.\u201d<\/p>\n

However, HMRC argued the payments received by Masters from his Sipp were not pensions or other similar remuneration paid \u201cin consideration of past employment\u201d.<\/p>\n

In addition to this, the payments did not fall within Article 20 of the UK-Portugal Double Tax Convention, because they were not income on which Masters was \u201csubject to tax\u201d in Portugal. <\/p>\n

HMRC argued that by undertaking the DB transfer to a Sipp the pension had lost enough of its connection to the original employment and could therefore be taxed in the UK. <\/p>\n

Rachel de Souza, tax partner at RSM UK, explained: \u201cIf that was the case, it could have far-reaching consequences for many expats who had moved overseas and similarly undertaken a transfer of their old workplace pension, as many of the UK\u2019s double tax treaties with other countries have similar wording. <\/p>\n

\u201cThese principles also apply to transfers from defined contribution occupational pensions to Sipps, which often occur as individuals consolidate their pension pots.\u201d<\/p>\n

Tribunal\u2019s decision<\/p>\n

The tribunal ultimately disagreed with HMRC\u2019s stance as it found in Master\u2019s case the pension funds largely originated from their previous employment and that the transfer to the Sipp did not break the causal link to that employment. <\/p>\n

No further contributions were made to the Sipp following the end of the Master\u2019s employment with Tesco and so the tribunal concluded the pension was \u201cpaid in consideration of past employment\u201d.<\/p>\n

Therefore, the pension payments were only taxable in Portugal under the tax treaty and the UK tax withheld at source should be repaid. <\/p>\n

De Souza said: \u201cIn practice, we have seen HMRC simply accept some applications for relief under double tax treaties where funds have been transferred from an occupational pension to a Sipp. <\/p>\n

\u201cIn other cases, HMRC has not accepted that the Sipp funds are paid in consideration of past employment. Thus, this judgment provides welcome clarification of the principles.\u201d<\/p>\n

As a result of Masters winning his appeal, the tribunal did not need to consider whether the pension payment was still theoretically \u201csubject to tax\u201d in Portugal under Article 20.<\/p>\n

De Souza said the outcome of this case would come as a relief to taxpayers who have retired overseas and plan to draw their pensions, or have already done so.<\/p>\n

\u201cWhile the news may initially appear positive, taxpayers shouldn\u2019t assume that their own pension will be free from UK income tax if drawn whilst they are non-resident. <\/p>\n

\u201cIn many cases, the pension will still require a strong link to a past employment. As this case confirms, if someone receives a salary and then contributes this to a personal pension, rather than an occupational one, then that is unlikely to be a strong enough link to employment,\u201d she added.<\/p>\n

alina.khan@ft.com<\/p>\n

Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com<\/p>\n","protected":false},"excerpt":{"rendered":"A first-tier tribunal found that an individual\u2019s pension withdrawals made from his UK pension while resident in Portugal…\n","protected":false},"author":2,"featured_media":361782,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[51,474,8370,127026,127027,2499,3046,16,15],"class_list":{"0":"post-361781","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-ft-adviser","11":"tag-hm-revenue-customs","12":"tag-international-advice","13":"tag-personal-finance","14":"tag-portugal","15":"tag-uk","16":"tag-united-kingdom"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/361781","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=361781"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/361781\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/361782"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=361781"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=361781"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=361781"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}