Pension Death Benefits for Non-Domiciled Spouses Living Abroad: The Tax Position

One of the most technically complex areas of UK pension planning concerns what happens to pension death benefits when the surviving spouse lives abroad. The intersection of UK pension rules, inheritance tax, income tax, non-domicile status and international tax treaties creates a planning landscape that requires careful, coordinated advice. In this guide we set out the key considerations for UK expats whose spouses are overseas — whether the spouse is a UK citizen living abroad, a foreign national who has never been UK-domiciled, or a non-domiciled individual whose status has changed following the April 2025 reforms.

The Starting Point: UK Pension Death Benefits and the Estate

Before addressing the international dimension, it is important to understand the core UK framework. When a UK pension member dies — whether holding a SIPP, a personal pension or a workplace defined contribution scheme — the pension fund does not automatically form part of their estate for inheritance tax purposes. The fund sits with the trustees or scheme administrator, who exercise discretion over payment guided by the member's Expression of Wishes.

This means that, in most circumstances, the pension fund is not currently subject to the 40% inheritance tax charge on death. This is a significant planning advantage, though it is changing: under the Finance Act 2026, most unused pension funds come within the IHT estate from 6 April 2027. We cover this change in detail in our guide on pension IHT reforms.

The Income Tax Position: Before and After Age 75

The most important factor determining whether UK income tax applies to pension death benefits is the member's age at the time of death.

Death before age 75: Lump sums paid from a DC pension or SIPP, and income drawn from an inherited drawdown account, are received completely free of UK income tax by the beneficiary. This applies regardless of where the beneficiary lives. An overseas spouse inheriting a £600,000 SIPP from a member who died at age 72 would receive those funds with no UK income tax deducted — whether they live in Spain, Cyprus, Thailand or anywhere else.

Death aged 75 or over: The income-tax-free status is lost. Pension payments to the beneficiary are subject to UK income tax at the beneficiary's marginal rate. This is where the international dimension becomes critical: if the beneficiary lives abroad, the applicable double taxation agreement may reduce or eliminate the UK's ability to charge that tax.

The Role of Double Taxation Agreements

A double taxation agreement (DTA) is a bilateral treaty between the UK and another country designed to prevent the same income from being taxed in both jurisdictions. Most UK DTAs contain a pension income article that assigns taxing rights to one country — typically the country where the beneficiary is resident.

If a DTA gives exclusive taxing rights over pension income to the country of residence, the overseas spouse can apply to HMRC (via Form DT Individual) to receive pension payments gross — without UK income tax deducted — and instead account for tax in their country of residence under that country's rules. In practice, this can significantly reduce the overall tax burden, particularly if the country of residence has lower income tax rates or higher personal allowances than the UK.

The DTA position varies by country, and the specific wording of the pension article matters:

• Spain and Greece: DTAs generally give the country of residence the right to tax UK private pension income. A spouse resident in Spain or Greece may pay no UK income tax on inherited pension withdrawals.
• Cyprus: The UK-Cyprus DTA gives Cyprus the right to tax pension income above a threshold. The practical effect for a Cypriot-resident spouse is that inherited pension income will generally be taxed in Cyprus at Cypriot rates.
• UAE: The UAE has no income tax, but the UK-UAE DTA is limited in scope. Private pension income may remain subject to UK income tax even if the beneficiary lives in the UAE — this requires case-by-case analysis.
• Thailand: The UK-Thailand DTA generally allows pension income to be taxed in Thailand rather than the UK. A Thai-resident spouse may be able to apply for relief.
• Bali (Indonesia): A DTA exists between the UK and Indonesia, but its scope is narrower. Professional advice is essential for clients in this region.

In all cases, obtaining DTA relief requires an active application — it is not automatic. The overseas spouse must engage with both HMRC and the tax authorities in their country of residence to claim the relief, and must typically provide certification of residence.

The Non-Domicile Dimension: April 2025 Changes

The concept of domicile — a distinct legal concept from residence — has historically been significant for UK tax purposes. A person who is not domiciled in the UK (a "non-dom") was previously able to use the remittance basis of taxation, paying UK tax only on income and gains brought into the UK. This created planning opportunities for non-domiciled spouses inheriting UK pension assets.

From April 2025, the government abolished the remittance basis and replaced it with a residence-based system. The transitional arrangements are complex, and the long-term implications for non-dom spouses inheriting pension assets are still being worked through by practitioners and HMRC. The key points at this stage are:

• Non-dom status itself does not determine the tax treatment of UK pension death benefits — the UK income tax position is determined by the pension rules (the age-at-death rule) and any applicable DTA.
• The non-dom changes primarily affect how overseas income and gains are taxed, and how UK and overseas assets are treated for inheritance tax. The interaction with the pension death-benefit framework adds further complexity.
• Clients with non-domiciled spouses should obtain updated advice that reflects the post-April 2025 position. Planning strategies designed under the old remittance basis framework may need to be reviewed and revised.

We strongly recommend that any client whose spouse is, or may be, non-domiciled takes specific advice from a tax specialist with expertise in both UK pension law and the new non-dom framework.

QROPS and Death Benefits: The Five-Year Rule

For clients who have transferred their UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS), the death-benefit position involves an additional UK rule: the five-year non-residence test.

If the QROPS member has been non-UK-resident for more than five complete UK tax years at the time of death, any death benefits paid from the QROPS are generally free of UK tax. The pension has, in effect, fully left the UK tax framework. The death-benefit rules of the overseas country and scheme then apply exclusively.

If the five-year period has not been met, the UK may retain taxing rights over the death benefits, and the position becomes more complex. This is one reason why the timing of a QROPS transfer relative to the client's departure from the UK matters — and why we always model the five-year position as part of our QROPS analysis.

The Overseas Spouse and the Expression of Wishes

For the practical administration of pension death benefits to an overseas spouse, the Expression of Wishes is the starting point. We advise clients to include:

• Full legal name, date of birth and country of residence for each nominated beneficiary
• Confirmation of the relationship (spouse, civil partner, adult child, and so on)
• The proportion of the fund each beneficiary should receive
• Alternative beneficiaries in case a primary beneficiary predeceases the member

Pension providers and scheme trustees are accustomed to overseas beneficiaries, but clear and up-to-date documentation reduces delays and reduces the risk of the fund being distributed in an unintended way. An overseas spouse who is unknown to the pension provider, or whose details are out of date, may face months of administrative delays at an already difficult time.

Practical Considerations for International Families

For clients with an international family structure — where one or both spouses have lived and worked in multiple countries — the pension death-benefit position can be genuinely complex. Key planning steps include:

Map all UK pension assets: Identify every DB scheme, DC pension and SIPP, note the current death-benefit provisions and confirm that the relevant Expression of Wishes is in place and current.

Assess the DTA position: For each relevant country of residence, review the pension article in the applicable DTA to understand whether UK income tax relief is available on inherited pension income.

Consider QROPS if appropriate: For clients who are firmly settled overseas and meet the eligibility criteria, a QROPS transfer may simplify the death-benefit position for the surviving spouse and improve the overall tax efficiency of the inherited funds.

Coordinate with local tax advisers: UK pension planning does not operate in isolation. We always recommend that clients and their families engage with tax professionals in their country of residence — particularly in jurisdictions with their own retirement income tax rules.

Review non-dom status: For any client whose spouse may be non-domiciled, the April 2025 reforms require a full review of the planning framework. Assumptions based on the old remittance basis are no longer reliable.

How Global Investments can help

At Global Investments, we work with international families at every stage of retirement and estate planning. For clients with overseas spouses, our starting point is a comprehensive review of all UK pension arrangements, the applicable double taxation agreements, and the current Expression of Wishes position with every provider. We identify gaps, risks and opportunities — and where the planning intersects with overseas tax law, we coordinate with specialist local tax advisers to ensure the advice is joined up.

We keep a close watch on the evolving regulatory environment, including the non-dom reforms and the pension IHT changes taking effect from April 2027. Our clients can be confident that their planning reflects the current rules, and that we will alert them when material changes require a review. Pension rules, tax rates and domicile rules change frequently, and it is essential to seek regulated, up-to-date financial and tax advice before making any decisions in this area. The value of pension funds can fall as well as rise, and past performance is not indicative of future results.