---
title: "Tax on Foreign Pensions UK: The Definitive 2026/27 Guide"
description: Advising clients on the UK taxation of foreign pensions requires a precise understanding of the domestic charging provisions under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). Furthermore, the abolition of the remittance basis and the introduction of…
url: "https://www.accountingfirms.co.uk/knowledge-bank/tax-on-foreign-pensions/"
updated: "2026-08-11"
category: "Expat & Non-Resident Tax"
---

# Tax on Foreign Pensions UK: The Definitive 2026/27 Guide

Advising clients on the UK taxation of foreign pensions requires a precise understanding of the domestic charging provisions under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). Furthermore, the abolition of the remittance basis and the introduction of the Foreign Income and Gains (FIG) regime in 2025 fundamentally altered the tax landscape for the 2026/27 tax year and beyond.

The legislation draws strict distinctions between periodic pension income, lump-sum extractions, and withdrawals made during periods of temporary non-residence.

## The Primary Charging Provision

Section 573 of ITEPA 2003 establishes the fundamental charge to UK income tax on foreign pensions.  The legislation dictates that [income tax](https://www.accountingfirms.co.uk/blog/hmrc-payment-niers/) applies to any pension paid by or on behalf of a person outside the UK to a person resident in the UK.

> "(1) This section applies to any pension paid by or on behalf of a person who is outside the United Kingdom to a person who is resident in the United Kingdom."

Section 573 does not apply if the pension falls under the rules for UK registered pension schemes, or under specific death benefit rules for members who die before age 75.

Under section 575 of ITEPA 2003, the taxable pension income is the full amount of the pension income arising in the [tax year](https://www.accountingfirms.co.uk/blog/good-timing-can-save-a-lot-of-tax/).  Historically, HMRC permitted a 10% deduction on foreign pensions, but Parliament abolished this deduction for payments made on or after 6 April 2017.

## The 2026/27 Landscape: The FIG Regime

Historically, non-domiciled individuals could shelter foreign pension income using the [remittance basis](https://www.accountingfirms.co.uk/blog/remittance-basis/) under ITTOIA 2005.  However, the Finance Act 2025 abolished the remittance basis of taxation entirely, effective from 6 April 2025.

In its place, the government introduced a residence-based 4-year Foreign Income and Gains (FIG) regime, which fully applies in the [2026/27 tax year](https://www.accountingfirms.co.uk/knowledge-bank/registering-for-self-assessment-uk/).

If an individual qualifies as a "new arrival" under the FIG regime, they receive 100% relief on their foreign income and gains (including foreign pensions) for their first four years of UK residence, provided they were non-UK resident for the prior 10 consecutive years.  Once this four-year period expires, all foreign pension income becomes strictly taxable on an arising basis, regardless of whether the individual brings the funds into the UK.

## Taxation of Foreign Pension Lump Sums

When a UK resident extracts a lump sum from an overseas pension scheme, section 574A of ITEPA 2003 taxes it as a "relevant lump sum".  The starting position is that 100% of the lump sum payment is taxable as foreign pension income.  However, the legislation provides a mechanism to reduce this taxable amount via three statutory steps.

| Statutory Step | Deduction Condition |
| --- | --- |
| **Step 1** | A deduction for the commutation of rights to receive pension income that would be exempt under Chapter 17 of Part 9 ITEPA 2003. |
| **Step 2** | A deduction for the value of lump-sum rights built up in the pension scheme before 6 April 2017. This excludes any investment growth occurring after that date. |
| **Step 3** | A deduction if an amount would not be liable to income tax had it been paid under a UK registered pension scheme (accounting for the individual's lump sum allowance). |

### **Case Study: Applying Step 2**

Consider Tom, a UK resident who receives a £150,000 lump sum from an overseas personal pension scheme.  The value of Tom's lump-sum rights on 5 April 2017 was £130,000, with no subsequent investment growth.  While the starting point taxes the full £150,000, Tom claims a Step 2 deduction of £130,000 (his pre-April 2017 rights).  Consequently, his final taxable foreign pension lump sum is reduced to £20,000.

## Temporary Non-Residence (TNR) Anti-Avoidance

To prevent individuals from temporarily leaving the UK to extract foreign pension wealth tax-free, HMRC enforces strict Temporary Non-Residence (TNR) rules under section 576A of ITEPA 2003.

If an individual makes "relevant withdrawals" from a relevant non-UK scheme (RNUKS) or registered scheme during a temporary period of non-residence, these withdrawals are treated as accruing in the period of return to the UK.  This rule triggers if the total relevant withdrawals across registered schemes and RNUKS during the non-resident period exceed £100,000.

Crucially, the legislation explicitly overrides tax treaties. Section 576A(7) states that nothing in any double taxation relief arrangement prevents the UK from [charging tax](https://www.accountingfirms.co.uk/blog/tax-on-selling-antiques/) on these TNR withdrawals upon the individual's return.

## Double Taxation Agreements (DTAs)

Outside of the TNR anti-avoidance provisions, DTAs play a vital role in determining the primary taxing rights over a foreign pension.

As demonstrated in the [First-tier Tribunal decision](https://www.accountingfirms.co.uk/blog/dont-write-off-your-chances-of-tax-relief/) of *Trevor John Masters v The Commissioners for HMRC* [2025], a DTA can grant sole taxing rights to the residence state.  In that case, Mr Masters (a UK non-resident holding Portuguese NHR status) extracted over £3.5m from a UK SIPP.  Because the UK/Portugal DTA allocated exclusive taxing rights over pensions paid in consideration of past employment to the residence state, Portugal held the sole right to tax the withdrawal, exempting it from standard UK charges.

 

*Consider researching how the Temporary Repatriation Facility (TRF) interacts with unremitted foreign pension income that arose before April 2025, given the 12% reduced rate available to former remittance basis users in the 2026/27 tax year.*