The End of Pension Inheritance Tax Exemption
According to 2026 analysis from pension specialists, British expats face a significant shift from 6 April 2027 when unused UK pension funds will be brought within the scope of inheritance tax for the first time. This marks the end of a longstanding exemption that has protected registered pension schemes from the 40% inheritance tax charge.
The change affects all UK registered pension schemes, including SIPPs (Self-Invested Personal Pensions), because they’re treated as UK assets due to their trustees being based in the UK. For British expats who’ve maintained UK pensions while living abroad, this represents a fundamental shift in estate planning considerations.
How the New Residence-Based Rules Work
The inheritance tax landscape has already shifted dramatically since April 2025, when the UK moved from domicile-based to residence-based inheritance tax rules. Under the new framework, you may be treated as a long-term UK resident if you’ve been UK tax resident for at least 10 of the previous 20 tax years.
This means even British expats living in France could find their worldwide assets, including overseas property and investments, caught in the UK inheritance tax net. The exposure only falls away after 10 consecutive tax years outside the UK, creating a lengthy transition period for recent emigrants.
For expats with UK pensions, the April 2027 changes compound this issue by removing the inheritance tax shelter that pension funds previously enjoyed.
What Gets Taxed and What Doesn’t
The 2027 reforms primarily target funded defined contribution arrangements, which includes most modern workplace pensions and SIPPs. Death-in-service benefits and certain dependant pension arrangements are expected to remain outside the new charge.
The timing of death significantly affects both inheritance tax and income tax treatment. If you die before age 75, benefits can generally be paid without income tax, subject to allowance rules introduced in 2024. However, from April 2027, those same benefits may face the 40% inheritance tax charge on your estate.
Die aged 75 or over, and the tax position becomes more complex. Benefits paid from UK pensions are treated as taxable income in the UK, with no exemption for non-UK residents. Your beneficiaries could face both income tax on withdrawals and inheritance tax on the fund value.
Planning Strategies for Expats
Consider a British expat in Dubai with a £1 million uncrystallised SIPP. Under current rules, they could take £250,000 as a tax-free lump sum, with the remaining £750,000 available as flexi-access drawdown. Since the UAE imposes no personal income tax, this could be an attractive strategy to reduce the pension fund before April 2027.
For British expats in France, the calculation becomes more nuanced. France taxes pension income, but Prudential International assurance vie bonds offer tax-efficient alternatives for reinvesting drawn pension funds. The assurance vie structure provides tax-deferred growth and favourable withdrawal treatment after eight years.
International SIPP transfers to qualifying recognised overseas pension schemes (QROPS) remain another option, though these come with their own tax implications and transfer restrictions.
The French Connection
British expats in France face particular complexity due to France’s own inheritance tax rules and the UK-France double taxation treaty. While the treaty aims to prevent double taxation, the interaction between UK inheritance tax on pension funds and French succession law creates planning challenges.
French residents often benefit from structuring their savings through assurance vie policies, which offer succession planning advantages that UK pensions cannot match. The insurance wrapper provides flexibility in beneficiary designation and can reduce French inheritance tax exposure for non-French beneficiaries.
How We Can Help
International Wealth Ventures can assess whether transferring your UK pension to an international SIPP makes sense for your situation, evaluating costs, benefits, and tax implications ahead of the April 2027 changes. We also specialise in setting up Prudential International assurance vie bonds for British expats in France, providing tax-efficient alternatives for pension fund reinvestment. Get a free pension review to model your options before the new rules take effect.
