During your playing career, you might get the opportunity to move to a team abroad somewhere. This is an excellent chance to see a new part of the world, potentially increase your earnings, and share a pitch with some of the best players in the game.
However, you might need to think about how the move could affect your retirement plan too. You may be saving in a pension during your playing career so you can build wealth to fund your lifestyle once you retire.
Moving abroad could affect certain benefits you receive from your UK pensions and how you manage your savings, so it is important that you understand the implications. You have several options including paying into a UK pension while abroad or transferring your pension savings.
Read on to learn what happens to your UK pensions when you play abroad.
You may lose some of the tax benefits if you continue paying into a UK pension scheme
If you live and work in the UK and contribute to a pension, you normally receive 20% tax relief at source. This means that a £100 contribution essentially “costs” you £80, with the other £20 coming from the government in the form of tax relief.
If you are a higher- or additional-rate taxpayer, you could receive 40% or 45% tax relief. You usually need to claim the extra 20% or 25% through self-assessment.
This tax relief can be very valuable as it helps you build your pension savings faster. Unfortunately, if you play abroad and continue paying into your UK pension, you might not qualify for tax relief.
That is because you typically only benefit from tax relief if you are a “relevant UK individual”. This means you:
- Have relevant UK earnings that you pay Income Tax on in that tax year
- Were resident in the UK
- Were resident in the UK in one of the previous five years and, at that time, became a member of a UK-registered pension scheme.
Depending on how long you are playing abroad, this could mean that you do not qualify for tax relief or the amount you receive is reduced.
The rules surrounding tax relief and pensions when you live abroad can be very complex so you might want to seek professional advice to understand the tax implications before making a decision.
You can only move your UK pensions to certain schemes in other countries
You can transfer your UK pension to a new scheme in another country, but there are limitations. The new scheme must be a qualifying recognised overseas pension scheme (QROPS).
HMRC decides whether overseas pension schemes are eligible for transfers and a QROPS usually needs to have similar characteristics to a UK scheme. For instance, the age at which you can access your pension savings might need to be similar to the minimum pension age of 55 (rising to 57 in 2028) in the UK.
It is your responsibility to make sure that the scheme you are transferring into is a QROPS. If it is not, your existing provider might deny the transfer, or you could face a 40% tax charge on the value of the pension. In some cases, additional penalties could mean you pay as much as 55% tax on the transfer.
You may also pay 25% tax when transferring into a QROPS, depending on the country where the new scheme is held, where you live, and the amount in your pension.
If you are transferring into a QROPS in the European Economic Area (EEA) or Gibraltar, you will pay 25% tax if you live outside the UK, the EEA or Gibraltar, or move outside this area within five years of making the transfer.
Otherwise, you do not have to pay tax. You can also claim a refund if you initially paid the tax charge and subsequently moved to the UK, EEA, or Gibraltar within five years of the transfer.
When transferring into a scheme outside of the EEA or Gibraltar, you do not normally pay tax if you live in the country where the QROPS is based. You may have to pay 25% tax if you subsequently move away from that country.
However, in both cases, if the total value of your pension pot exceeds the Overseas Transfer Allowance (OTA) you typically pay the Overseas Transfer Charge (OTC) of 25% tax on any funds that exceed the allowance.
In 2024/25, the OTA is £1,073,100, although it may be higher if you previously had a protected pension Lifetime Allowance (LTA).
It may be useful to think about your retirement goals when deciding how to manage your pensions
When deciding whether to move your pensions abroad, you may want to consider whether you plan to return to the UK when you retire. Your plans for retirement could affect your decision in several ways.
Firstly, there are potential limits on when you can access your pension once you transfer it. Since 6 April 2017, you must have been resident outside of the UK for 10 consecutive tax years before you can access a QROPS.
Additionally, you could pay tax on your income twice when you access your pension if you stay living abroad. This is because you may pay once in the UK and again in the country where you reside.
Certain countries have a “double taxation agreement” with the UK to prevent this. You may need to check whether this is the case in your chosen country if you plan to retire there, so you know what tax you are likely to pay.
Some UK pension providers may charge a fee for paying into a foreign bank account too. The exchange rate could also affect the spending power of your pension income because UK providers will normally pay you in sterling. Depending on the exchange rate, this could work in your favour or against you.
It might be more beneficial to move your pensions if you plan to retire abroad and are concerned about double taxation, charges, or exchange rates. Conversely, if you are likely to move back to the UK, you may decide to leave your pensions as they are.
That said, your decision may be dependent on which country you move to and the specific pension rules there.
Working with a professional could help you decide whether to move your pensions
Deciding whether to transfer to a QROPS when you move abroad is challenging because there are several factors to consider including:
- Tax charges when transferring the pension
- Tax charges when accessing the pension
- When you can access your savings
- Investment choices
- Estate planning (whether you can pass on funds without triggering an Inheritance Tax (IHT) charge).
It may be useful to seek professional advice to ensure you have considered all these factors and you make a decision that supports your long-term financial goals.
Get in touch
If you are considering taking a contract abroad, then please do get in touch with us at DBL Asset Management to discuss how this could affect your pensions.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
