SIPPs For Expats Explained

SIPPs are ideal for expats away from the UK for a year or two who want to carry on retirement saving with all the tax advantages of staying at home.

An important rule about SIPPs is pension savers do not have to stay in Britain to gain all the benefits of a UK pension – they must retain residence.

Residence is a matter of fact, not choice, and generally involves keeping a main home in the UK along with several other factors relating to finances and family.

SIPPs are also a good place to collect several smaller pensions into one cheaper and easier to manage fund.

Online providers also offer a wide range of investment opportunities unavailable in workplace or other personal pensions for retirement savers who want to manage their own funds.

Tax boost for retirement savers

Expats find SIPPs are attractive because they can skip the country for two or three years without disrupting the financial plans for retirement.

While away, a SIPP allows expats to claim the fund-boosting pension contribution relief. This is the top-up from HM Revenue & Customs that makes every £80 saved by a basic rate taxpayer into a £100 contribution.

In return for the tax relief, HMRC demands expats also follow other UK pension tax rules on the same terms as if they were living in Britain.

For savers, that means a cap on annual payments in of £40,000 and a lifetime limit on fund size of £1 million, although that will rise in line with the cost of living from next year.

Most current SIPPS come with pension freedoms for expats, too.

QROPS v SIPPs for expats

That mean options about taking cash lump sums, buying an annuity or taking a regular income for someone spending their time overseas.

However, UK income tax is levied on withdrawals and regular payments.

In most cases the tax is deducted at source by the provider and paid in Sterling.

For expats intending to live overseas permanently, a SIPP may come with a tax disadvantage against a Qualifying Recognised Overseas Pension Scheme (QROPS).

Expats outside the UK lose their SIPP their tax benefits as non-residents, but may regain some tax efficiency with a QROPS.