Pension Death Benefits for Expats: Who Inherits Your Pension Abroad?

Death benefits from UK pension schemes are among the most flexible and potentially tax-efficient in the world — yet they are routinely misunderstood, poorly documented, and (for expats) subject to additional layers of international tax complexity.

The single most important action any pension holder can take — and the one most frequently neglected — is completing the nomination of beneficiary form (also known as an Expression of Wishes) with their pension provider. Everything else in this guide depends on that document existing and being up to date.

How Pension Death Benefits Work: The Fundamentals

Pensions Do Not Follow Your Will

A critically important point: your pension fund does not form part of your estate and does not follow your will. Unlike bank accounts, property, or investment portfolios, pensions are held under a trust structure managed by pension scheme trustees. When you die, the trustees have discretion to pay benefits to your nominated beneficiary.

Because the pension passes outside your estate, it is not delayed by probate, is generally not subject to IHT (currently — see below), and can be paid promptly to your beneficiaries.

The Expression of Wishes

The Expression of Wishes (or nomination form) is your instruction to the trustees indicating who you would like to receive the death benefits. Trustees are not legally obliged to follow it — they retain discretion — but in practice, a clear, up-to-date nomination is followed in the vast majority of cases.

Key actions:

• Complete the form for every pension scheme you belong to
• Update it after major life events: marriage, divorce, birth of children, death of a nominated beneficiary
• Be specific: name individuals and their relationship to you; for international estates, include date of birth and address

If you die without a nomination form, or with an outdated one, the trustees will exercise discretion — which may not align with your wishes, and can cause delays and disputes, particularly if your estate is subject to multiple jurisdictions.

Death Before Age 75: The Tax-Free Window

If you die before age 75, the death benefits from a defined contribution pension (SIPP, personal pension, or drawdown fund) can be paid to your nominated beneficiary completely free of UK income tax.

The beneficiary can choose to receive the benefits as:

• A lump sum — tax-free, paid promptly
• Drawdown — the fund is transferred into a beneficiary drawdown plan in the beneficiary's name, who can then draw it at any time, tax-free (while the original member was under 75 at death)
• An annuity — purchased in the beneficiary's name, tax-free

This is one of the most powerful aspects of modern pension planning. A pension pot of £500,000 passing to a child or partner on death before age 75 is entirely free of income tax. In a world where all other large asset transfers (investment portfolios, bank deposits, property proceeds) are typically taxed, this is exceptional.

Lump Sum and Death Benefits Allowance

Under the rules introduced following LTA abolition, the Lump Sum and Death Benefits Allowance (LSDBA) is £1,073,100. This caps the combined total of:

• Tax-free cash (PCLS) taken during the member's lifetime, plus
• Tax-free lump sum death benefits paid from the pension on death before age 75

Where the total exceeds £1,073,100, the excess is taxed as income of the beneficiary.

For most pension holders, this allowance will not be breached. For those with very large pension pots (above approximately £800,000+, depending on PCLS taken), this allowance needs monitoring.

Death After Age 75: Taxed as Beneficiary's Income

If you die on or after your 75th birthday with pension funds still in a SIPP, drawdown, or uncrystallised arrangement, your nominated beneficiary receives those funds — but any payments they take from the inherited pension are taxed at their marginal income tax rate.

The pension pot is not subject to UK income tax on the member's death — it passes to the beneficiary. But the beneficiary is taxed on each withdrawal at their own rate.

Planning implication: if the nominated beneficiary is a lower-rate taxpayer (for example, a younger child with modest income), the inherited pension may be drawn tax-efficiently at lower rates. If the beneficiary is a high earner, they will pay 40–45% on all withdrawals.

Defined Benefit Pension Death Benefits

Death benefits from defined benefit (final salary) schemes are governed by the scheme rules and are very different from DC death benefits.

If You Die Before Drawing Your DB Pension

• Lump sum death grant: most DB schemes pay a lump sum equal to 3–4× your salary (or a fixed multiple of your pension entitlement) if you die before Normal Retirement Age
• Spouse's pension: typically 50–66% of the pension you would have received, paid for the spouse's lifetime
• Children's pension: for dependent children under typically age 18 (or 23 if in full-time education)

These benefits are generally outside your estate for IHT purposes (paid at trustee discretion), but are not as flexible as DC death benefits — you cannot direct them to non-dependent adult children or to charity.

If You Die After Drawing Your DB Pension

• The spouse's pension continues (if you elected joint-life pension at retirement)
• No lump sum death grant once benefits have commenced (in most schemes)
• No ability to leave remaining capital to heirs — the pension terminates on death (or on the spouse's subsequent death)

This is a fundamental contrast with DC pensions. A large DB pension provides security for the pensioner but leaves nothing for adult children on death — a key consideration in estate planning discussions for those with DB/DC hybrid situations.

Inheritance Tax and Pensions

The Current Position

Defined contribution pensions held in SIPP or personal pension structures are generally outside the member's estate for UK Inheritance Tax purposes. Because they pass by trustee discretion rather than under the will, they are not caught by the IHT rules that apply to estate assets.

This means:

• A pension pot of £1 million does not attract 40% IHT on death
• Pension funds can be passed down to the next generation IHT-free (currently)
• For large estates, concentrating wealth in pension structures has been a legitimate and widely-used planning strategy

The 2027 Change

Announced in the Autumn Budget 2024 and subsequently legislated in the Finance Act 2026 (Royal Assent 18 March 2026), most unused pension funds will be included in the IHT estate from 6 April 2027. Pension funds remaining unused at death will be added to the deceased's estate and potentially taxed at 40% IHT (subject to the nil rate bands and any reliefs).

Liability to report and pay the IHT rests with the personal representatives of the estate, though scheme administrators have new supporting duties (including a Pensions Direct Payment Scheme through which the IHT attributable to the pension can be settled directly from the fund). The implementation detail is complex, so obtain specific advice on how the change affects your estate.

Do not make estate planning assumptions based on the current IHT-free position of pensions without obtaining up-to-date advice on the 2027 change.

Non-UK Beneficiaries: International Tax Considerations

For expats with family abroad or nominated beneficiaries who are tax residents in other countries, there is an additional layer of complexity.

UK Withholding

Where a non-UK resident beneficiary receives a lump sum death benefit from a UK pension before the member's age 75, it is paid tax-free in the UK. There is no UK withholding tax.

Residence Country Tax

The beneficiary's country of residence may tax the receipt:

• Cyprus: lump sums from pension death benefits are not treated as pension income and may be treated as a capital receipt — potentially exempt or at a low rate
• UAE: no income tax in UAE — the beneficiary would receive the full amount without UAE tax
• Spain: pension death benefits received by a Spanish resident would typically be treated as income and taxed at Spanish rates
• Thailand: foreign-source income remitted to Thailand may be taxable depending on remittance timing

This requires tailored advice in the beneficiary's jurisdiction.

QROPS Death Benefits

QROPS death benefit treatment depends on the specific scheme and jurisdiction.

Malta QROPS: Malta has long been a common QROPS jurisdiction. Malta has no gift or inheritance tax, and death benefits from a Malta QROPS can often be passed to heirs efficiently, though the precise treatment depends on the scheme rules, the member's age at death and the beneficiary's country of residence. For large pots — particularly given that unused pensions come within UK IHT from 6 April 2027 — a Malta QROPS may offer death benefit advantages, but these must be weighed against transfer costs and the Overseas Transfer Charge.

International QROPS (Guernsey, Isle of Man): death benefit flexibility varies. The trustee structure means that lump sums can often be paid efficiently, but the tax treatment in the beneficiary's country is the primary determinant.

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How Global Investments Can Help

Estate planning for internationally mobile families requires integrating UK pension law with the succession rules and tax regimes of multiple countries. Our pensions team works with estate lawyers and international tax advisers across our global network to provide joined-up guidance.

We can help with:

• Reviewing and updating pension nominations for all your schemes
• Modelling death benefit outcomes under current IHT rules and the legislated 2027 change
• Assessing QROPS death benefit structures for those with estate planning priorities
• Coordinating pension death benefit planning with wills, trusts, and international estate structures
• Advising beneficiaries on tax-efficient drawdown from inherited UK pension funds

Visit /uk-pensions/ for all our pensions guides for UK expats and international families. This guide is for informational purposes only and does not constitute regulated legal, tax, or financial advice. IHT rules may change; always seek current professional advice.