If you leave the UK permanently, you won’t get all the tax you’ve paid back, but there are ways to claim certain tax refunds and manage your pension. Here’s a breakdown of what happens to your tax payments and pension if you leave the UK:
1. Tax Refund When Leaving the UK Permanently
While you cannot reclaim all the tax you’ve ever paid, you may be eligible for a partial tax refund in specific cases, particularly in the tax year you leave the UK. Here’s how it works:
a) Income Tax Refund
If you leave the UK partway through a tax year (which runs from 6 April to 5 April), you might be eligible for an income tax refund if:
- You’ve paid more tax than was necessary because you worked only part of the year.
- You earned less than the personal allowance for that tax year (for the 2024/25 tax year, the personal allowance is £12,570).
To check if you’re eligible for a refund:
- You will need to submit Form P85 ("Leaving the UK – getting your tax right") to HMRC. This form tells HMRC that you’re leaving the UK and allows them to assess whether you are owed any tax refund.
- If you’ve overpaid tax due to leaving early in the tax year or because of emergency tax codes, you may receive a refund.
b) National Insurance (NI) Contributions
You generally cannot claim back National Insurance contributions. NI payments contribute towards state benefits like the UK State Pension and other social security benefits, so they are non-refundable. However, depending on the country you move to, your NI contributions might count towards social security in that country if there’s a reciprocal agreement in place (e.g., with European Economic Area countries, Switzerland, and some others).
2. What Happens to Your UK Pension When You Leave?
a) Defined Contribution Pensions (Workplace or Personal Pensions)
If you have a defined contribution pension (most modern workplace or personal pensions), the pension pot belongs to you, and you can decide what to do with it even if you leave the UK permanently. Here are your options:
- Leave the Pension in the UK: You can keep your pension in the UK, and it will continue to grow based on the investments within the pension scheme. You can still access your pension from abroad when you reach retirement age (currently 55, rising to 57 in 2028).
- You can then withdraw your pension as a lump sum (with 25% of it being tax-free) or opt for a pension drawdown.
- Transfer Your Pension Abroad: You can transfer your pension to an overseas pension scheme, but the scheme must be a Recognised Overseas Pension Scheme (ROPS) to avoid tax penalties.
- Before transferring, make sure to check if it’s a ROPS and any associated costs or tax implications.
- Claim Your Pension from Abroad: When you reach the pension age, you can start drawing from your UK pension, even if you live abroad. Be aware of the potential for double taxation, as the pension income might be taxed both in the UK and in the country you move to, depending on tax treaties between the UK and that country.
b) Defined Benefit Pensions (Final Salary Pensions)
With a defined benefit pension, the situation is more complex because this type of pension guarantees a fixed income for life. Typically:
- You cannot transfer a defined benefit pension abroad, but you can still receive payments from it when you retire, even if you live abroad.
- You will likely pay UK income tax on your pension payments, though there may be tax agreements between the UK and your new country of residence that prevent double taxation.
c) UK State Pension
You are entitled to claim the UK State Pension even if you live abroad, provided you’ve made sufficient National Insurance contributions. However:
- The amount you get depends on the number of qualifying years of National Insurance contributions.
- If you’ve paid National Insurance for 10 years, you’re entitled to a partial State Pension. If you’ve paid for 35 years, you’re entitled to the full State Pension.
- The UK government "uprates" (increases) the state pension each year in some countries through the triple lock(which increases the pension based on inflation, earnings, or 2.5%, whichever is higher). However, this only applies if you move to certain countries, such as those in the EEA, Switzerland, and countries with reciprocal agreements (e.g., the USA, Canada, New Zealand, Australia). If you move to a country without such an agreement, your State Pension will be frozen at the amount it was when you left.
3. Tax on Your Pension if You Live Abroad
Whether you pay tax on your pension depends on your tax residency and whether the UK has a Double Taxation Agreement (DTA) with the country you move to.
- If the UK has a DTA with the country, you might only pay tax in the country where you reside, or the agreement will prevent you from being taxed twice (both in the UK and in the new country).
- If there is no DTA, your pension income could be taxed in both countries.
You should seek advice on this before you retire abroad, as tax rules vary between countries.
4. Moving to the EEA or Countries with Reciprocal Agreements
If you move to an EEA country or one with a reciprocal agreement with the UK, it is usually easier to manage your UK pension, and you may continue to benefit from annual pension increases (for the State Pension).
5. Steps to Take Before Leaving the UK
- Submit Form P85 to HMRC for any potential income tax refund.
- Review your pensions: Ensure you know what will happen to your pensions and check if your pension scheme allows transfers to overseas pension schemes.
- Update your address and beneficiary information with your pension provider.
- Check tax treaties between the UK and the country you are moving to, so you understand any tax implications on your pension income.
Conclusion
- Tax refunds: You can claim a tax refund for any overpayment in the year you leave, but you won’t get back all the tax you've paid in previous years.
- Pension: Your pension remains yours, and you can choose to leave it in the UK or transfer it to a recognized overseas pension scheme. If you leave it in the UK, you can still access it from abroad when you retire.
- State Pension: You can claim your State Pension abroad, but it may be frozen or uprated depending on where you live.
Managing taxes and pensions when leaving the UK permanently requires some planning, and it's advisable to seek professional financial advice to ensure you're making the best decisions for your situation.