Reaching the point where you can actually draw your UK pension should be the easy part. For expats it often is not. Left to run on its default settings, a UK pension will tax your first withdrawal at an emergency rate, apply UK tax to income that your treaty says belongs to your country of residence, and treat your carefully planned lump sum in a way that can trigger a tax bill you never expected. None of this is inevitable. It happens because the system does nothing automatically and the paperwork has to be done in the right order, before you draw. This guide explains how UK pension income is taxed when you live abroad in 2026, how to get an NT code so your pension is paid without UK tax deducted, and the timing decisions that make the biggest difference. It is a starting point for understanding your position, not personal tax advice.
This is the fundamental thing to understand. Your UK pension scheme does not know or care that you live abroad. Unless HMRC tells it otherwise, it applies a standard UK tax code, deducts UK income tax at source through PAYE, and pays you the net amount. Worse, the first taxable payment is usually taxed on an emergency Month 1 basis, which applies only one twelfth of the personal allowance and the tax bands to that single payment. The result is that a substantial first withdrawal can be taxed at rates up to 45%, far more than is actually owed. The money is usually reclaimable, using Form P55 for pension lump sums or Form P50Z if you have stopped working and want all the tax refunded, but the process takes time and you are out of pocket in the meantime. The lesson is that nothing about your pension adjusts itself when you emigrate. If you want to be taxed correctly, you have to make it happen, and you have to do it before you draw.
Whether the UK or your country of residence has the right to tax your pension income is determined by the double taxation agreement between the two countries. Under most treaties, private and workplace pension income becomes taxable only in your country of residence once you are genuinely non-resident, which is exactly why the UK's default deduction is wrong for many expats. There are important exceptions. Government service pensions, such as civil service, military and police pensions, generally remain taxable in the UK regardless of where you live, under a separate treaty article. The UK State Pension varies by treaty: for a UK national resident in Spain, for example, it is taxable only in Spain, whereas under some other treaties it remains taxable only in the UK. The practical point is that you cannot assume. The treaty for your particular country, and the article covering your particular type of pension, is what governs, and the differences between treaties are real. Your residence status under the UK Statutory Residence Test is the foundation of all of it.
An NT code, meaning no tax, is a PAYE code HMRC issues to your pension provider instructing them to pay your pension gross, without deducting UK tax. It is the legitimate mechanism for expats whose treaty gives taxing rights to their country of residence. Broadly, you qualify if you are non-resident under the Statutory Residence Test, the income is UK pension income, and your country has a treaty giving relief on pensions. The process runs like this: confirm your treaty position, put your pension into drawdown (an NT code cannot be applied to a pension that is not yet in payment), complete the relevant treaty relief form, which is usually the DT-Individual form, though a number of countries including Spain, France, Germany, Ireland, Australia, Canada and the United States have their own specific versions, have it certified by the tax authority in your country of residence to confirm you are tax resident there, and send it to HMRC. HMRC then instructs your provider to apply the NT code. Allow six to eight weeks or more. A common and expensive misconception is that filing a P85 when you leave the UK is enough. It is not. The P85 tells HMRC you have left; it does not stop your pension being taxed.
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This catches people out badly, and the amounts involved are large. Under UK rules you can generally take up to 25% of your pension as a tax-free lump sum, the Pension Commencement Lump Sum, subject to your available Lump Sum Allowance, which is currently £268,275 for most people. In the UK, that money is genuinely free of tax. But UK law does not bind your country of residence, and several countries do not recognise the UK's tax-free treatment. Spain and France, for example, may tax the lump sum as income under their domestic rules, potentially at high rates. If you are planning to move abroad and are already able to access your pension, the timing of when you take the lump sum, before or after you become tax resident in your new country, can be one of the most valuable decisions you make. Separately, many double tax treaties treat lump sums differently from regular pension income, and some preserve the UK's right to tax a lump sum even where regular income is taxable only in your country of residence. An NT code does not automatically solve the lump sum question.
There is a meaningful difference between taking a regular income through flexi-access drawdown and taking ad hoc lump sums, known as UFPLS, and it is not only a UK issue. Foreign tax authorities frequently treat a regular periodic pension payment and a large one-off withdrawal very differently, and a treaty that exempts your pension from UK tax may not extend to something HMRC or your local authority classifies as a lump sum. Taking a large irregular withdrawal can therefore produce a very different outcome from taking the same amount as monthly income. This is a genuinely technical area where the pattern of your withdrawals, not just the total, drives the tax result, and it deserves proper planning in both countries before the first payment is made.
Once you take taxable income from a defined contribution pension, which means anything beyond the tax-free lump sum, you trigger the Money Purchase Annual Allowance. This permanently reduces the amount you can contribute to defined contribution pensions to £10,000 a year, down from the standard annual allowance. For an expat who is still working, may return to the UK, or intends to keep building pension savings, this is a significant and irreversible consequence of drawing early. Taking the tax-free lump sum alone does not trigger it, but taking any taxable income does. The decision to start drawing is therefore not only about whether you need the money now; it is about what it closes off. It also interacts with the April 2027 change bringing unused pension funds into the inheritance tax net, which for some people changes the calculus on drawing earlier rather than later. Those two considerations pull in opposite directions and need to be weighed together.
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Filing a P85 to tell HMRC you have left the UK is a sensible step, but it does not stop your pension being taxed in the UK. Many expats believe it does, take a withdrawal, and are surprised by the deduction. The NT code is a separate application through the treaty relief process, and without it your provider will keep applying UK tax.
Because the first taxable payment is usually taxed on an emergency Month 1 basis, a large initial withdrawal can suffer far more tax than is due. Reclaiming it is possible using Form P55 or Form P50Z, but it means being out of pocket for months. Sequencing the NT code before any meaningful withdrawal avoids the problem entirely.
It is tax-free in the UK, within your Lump Sum Allowance. It may not be tax-free where you live. Taking a large lump sum after becoming resident in a country that taxes it, when taking it beforehand would have avoided that, is one of the most expensive avoidable mistakes an expat retiree can make.
Government service pensions generally stay taxable in the UK whatever the treaty says about ordinary pensions, and the State Pension is handled differently across treaties. Assuming all your pension income is treated the same way, when it is not, leads to incorrect expectations and incorrect filings.
Taking a modest amount of taxable income to get the NT code applied is a common step, but it does trigger the Money Purchase Annual Allowance and permanently limits future pension contributions to £10,000 a year. If you intend to keep contributing, that consequence should be understood and planned for, not stumbled into.
Helen planned to move to the Algarve and start drawing her £600,000 SIPP once she arrived. Her intention was to take the 25% tax-free lump sum shortly after settling in, then draw a regular income. She had filed a P85 and assumed that meant HMRC would leave her pension alone.
A review before she moved identified three problems with that plan. Her P85 would not prevent UK tax being deducted, and her first withdrawal would have been taxed on an emergency basis. Her £150,000 lump sum, tax-free in the UK, would have been taken after she became Portuguese tax resident, exposing it to Portuguese income tax under the standard rules that now apply since the closure of the NHR regime. And starting income before the NT code was in place would have meant months of over-deduction and a reclaim. The sequence was reordered: she took her tax-free lump sum while still UK resident, so it was received free of tax in both countries; she then moved, established Portuguese residency, and only after her NT code was in place did she begin drawing regular income, which is now taxed in Portugal under the treaty rather than at source in the UK.
The same money, the same move, the same retirement, but the lump sum was received tax-free rather than taxed abroad, and her income has been paid gross from the outset rather than being over-deducted and reclaimed. The only thing that changed was the order in which she did things.
Illustrative example, not a real client.
Clarity Global Wealth helps British expats plan how and when to draw a UK pension from abroad, in the right order and with the right paperwork in place before the first payment. That means establishing your residence position under the Statutory Residence Test, checking what the treaty for your country actually says about your particular pensions, sequencing the tax-free lump sum around your residency date rather than after it, arranging the NT code so your income is paid gross from the start, and understanding what drawing closes off, including the Money Purchase Annual Allowance and the interaction with the April 2027 inheritance tax change. Because these decisions land in two tax systems at once, we coordinate with regulated tax and financial advisers in both the UK and your country of residence, so that the plan you act on is appropriate and compliant in both. Getting the sequence right costs nothing extra. Getting it wrong is expensive and, in the case of the lump sum, often permanent.
This guide is provided for general information only and reflects our understanding of the rules as at the date of publication. It is not personal financial, investment, pension or tax advice, and should not be relied upon as such. Rules and tax treatment can change and depend on your individual circumstances and country of residence. You should always seek regulated advice specific to your situation before taking action.
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