Moving a UK pension abroad: the 25% charge, and what America makes of it

Figures relate to tax year 2025-26 (UK) · 2025 (US)

You are leaving Britain, and an adviser suggests moving your pension to an overseas scheme. The pitch sounds tidy: one pot, one currency, fewer forms. Then the transfer charge appears, and for anyone with an American passport a second bill can follow.

Some transfers still make sense. Most of the ones we review do not. So this guide covers when the 25% charge applies, what America makes of the same transaction, and the questions to ask before signing anything.

Key takeaways

• Transfers to a qualifying overseas scheme can attract a 25% charge on the amount moved.
• Exclusions exist, and they narrowed considerably in late 2024.
• The receiving scheme must appear on HMRC's list, and that list changes.
• America may treat the transfer as a taxable distribution, whatever Britain calls it.
• The treaty protects transfers between British schemes far more clearly than transfers abroad.
• Staying put is often the cheapest answer for someone who files in both countries.

What is the overseas transfer charge?

It is a 25% charge on the value moved when a UK pension transfers to a qualifying recognised overseas pension scheme. According to HMRC guidance, the scheme administrator deducts it before the money leaves. Certain exclusions remove the charge, and the rest of this guide explains which.

The charge exists to stop people moving pensions abroad purely to escape British tax. It applies to the transfer itself rather than to any later withdrawal.

When does the charge apply?

Unless an exclusion covers you, it applies to the whole amount. The main exclusion protects people who are resident in the same country as the receiving scheme. Others cover employer schemes and certain international organisations.

The exclusions changed in late 2024, when the Treasury withdrew the broader protection for transfers within Europe. Anyone relying on older advice should assume the position has moved.

So the same transfer that was free two years ago can cost a quarter of the fund today.

What does America make of a transfer?

Potentially a distribution, which is the part advisers rarely raise. The treaty protects transfers between pension schemes in the same country reasonably clearly. A transfer from a British scheme to one in a third country sits outside that protection, so the IRS may treat the whole amount as paid out to you.

The consequences follow from there. A taxable distribution means income tax on the full value, and potentially an early distribution penalty for anyone under the relevant age.

So the combined cost can reach half the fund. A 25% British charge on the way out, and American tax on the same money, with little or no credit available between them.

Which schemes qualify at all?

Only those on HMRC's published notification list, and even that is not a guarantee. The list shows schemes that have told HMRC they meet the conditions. HMRC does not verify each one, and schemes drop off it regularly.

Transferring to a scheme that fails the conditions creates an unauthorised payment. That brings its own charges, which can exceed the transfer charge itself.

So check the list on the day of the transfer, not on the day of the advice. A gap of a few weeks matters here.

What about defined benefit pensions?

They raise a separate question before tax enters the picture. Transferring out of a defined benefit scheme gives up a guaranteed income, and British rules require regulated advice above a value threshold. The transfer charge then applies on top of that decision.

For an American, the combination is rarely attractive. You give up the guarantee, pay the charge, and take on an uncertain American tax position.

A worked example

The figures below are illustrative. Take an example: an American leaving Britain for Dubai with a £400,000 personal pension, advised to move it to a scheme in Malta.

No exclusion applies, because the new residence and the scheme sit in different countries. The transfer charge takes £100,000 before anything moves.

The American return may then treat the remaining £300,000 as a distribution. Income tax on that amount, with no British tax to credit, can swallow most of the remainder.

Leaving the pension where it is costs nothing and preserves the treaty position. That is usually the answer we give.

Why do advisers still recommend transfers?

Because for many non-Americans they work well. Consolidation, currency matching and estate flexibility all count as genuine benefits. The commission on a transfer is often substantial too. None of those reasons account for the American tax position.

Ask whoever suggests it a direct question. What happens on the US return, and who is advising on that? If the answer is vague, treat the recommendation as incomplete.

What about transfers between UK schemes?

Those are usually straightforward. Moving from one British scheme to another does not trigger the transfer charge, and the treaty position is far clearer. Consolidating old workplace pots into a single British scheme achieves most of the tidiness people are looking for.

Our guide to UK pensions on a US return covers how America handles those schemes year to year.

What if you have already transferred?

Deal with the reporting first, then the return. Check whether the transfer charge was deducted, whether an exclusion was claimed, and on what basis. Then work out how the American return treated the transfer, because many never mention it at all.

Where the American position was missed, it may be fixable. A non-willful taxpayer can usually correct earlier years through a compliance route rather than waiting to be asked.

Keep the scheme paperwork either way. The transfer documents, the charge calculation and the exclusion claim all matter if questions arrive later.

Does the size of the pot change the answer?

Only in scale, not in principle. A £40,000 pot and a £400,000 pot face the same rules, and the same 25% applies to each. The larger the fund, the more the decision is worth getting right.

Small pots raise a different practical question. The cost of advice can outweigh the benefit of moving them at all, which usually argues for consolidating in Britain instead.

How to assess a proposed transfer

Work through the British position first, then the American one, then the alternatives. Most transfers fail at one of the first two steps.

1. Check that the receiving scheme appears on HMRC's published list.
2. Establish whether any exclusion from the charge applies to your circumstances.
3. Calculate the charge on the full transfer value if no exclusion applies.
4. Ask how the IRS would treat the transfer, in writing, before proceeding.
5. Price the alternative of consolidating within Britain instead.
6. Check the ongoing reporting the receiving scheme would create.
7. Compare the total cost against the benefit the adviser has described.

Reporting after a transfer

A transferred pension does not disappear from view. British reporting obligations continue for a period after the transfer, and the receiving scheme reports payments back to HMRC. Breaking those conditions can bring the charge back later.

On the American side, an overseas pension can bring foreign account and asset reporting of its own. Moving the pot from a British scheme to an offshore one usually adds forms rather than removing them.

Does the charge ever come back?

Yes. An exclusion can be lost if circumstances change within the relevant period after the transfer, for example if you move country again. The charge then becomes payable even though nothing moved at that point.

That makes a transfer a poor fit for anyone whose plans are uncertain. A move that made sense on paper can produce a charge two years later.

What happens if you stay put?

Very little, which is the point. A British pension left where it is continues under the treaty, with growth generally protected until you draw it. You report the scheme where the rules require, and nothing else changes when you move abroad.

Access still works from overseas. Most British schemes pay pensions to members living anywhere, in sterling or sometimes in local currency.

The main practical irritation is administrative. Some providers handle overseas addresses badly, and a few require a UK bank account. Neither is a tax reason to move the fund.

Does currency risk justify a transfer?

Rarely on its own. Holding a sterling pension while living abroad does create exchange risk, but you can usually manage that inside the existing scheme by choosing different funds. Moving the whole pot to solve a currency question is an expensive way to rebalance.

Ask what the transfer buys that a fund switch does not. That single question ends most transfer conversations we join.

What does the charge fund look like in practice?

The administrator takes it from the transfer value, so the receiving scheme gets 75%. You never see a bill, which is partly why the cost registers late. People notice the shortfall only when the new statement arrives.

That deduction cannot be reversed by changing your mind afterwards. Once the transfer completes, the charge is paid and the money is gone.

Mistakes and penalties we see with pension transfers

• Relying on advice written before the 2024 changes to the exclusions.
• Assuming the treaty protects a transfer to a third country as it would a domestic one.
• Taking commission-led advice without a US adviser involved at all.
• Missing the reporting conditions that continue after the transfer.
• Transferring shortly before another move, which can bring the charge back.
• Overlooking the new reporting the receiving scheme creates on the American side.

The costs here dwarf ordinary penalties. A wrong decision can remove a quarter of a pension immediately, and more again once the American return catches up.

When might a transfer still work?

Where an exclusion clearly applies, where you know exactly where you will live, and where American advice confirms the treatment. A person retiring permanently to a country with a qualifying scheme, holding no US passport, sits in a very different position from the reader of this guide.

Even then, compare it against consolidating in Britain. The simpler option often delivers most of the benefit at none of the risk.

How US UK Tax Accountants helps

We price the transfer properly before anything moves, in both systems, and put the answer in writing. Where an adviser has already recommended a transfer, we review it alongside them. If someone has suggested moving your pension abroad, get in touch with the paperwork and we will assess it with our treaty relief team. Our guide to US retirement accounts in Britain covers the mirror question for American pots.

Last reviewed 24 September 2026. This article is general information and not personal tax advice. Pension transfer rules changed recently and continue to develop, so check the current position before acting.