How British Expats Can Avoid UK Tax on Their Pension Income

If you’ve left the UK behind, your pension may not need to be taxed there. But that’s exactly what happens to many expats drawing income from UK pensions, often without them even realising it.

The fix? It’s called an NT (No Tax) Code, and it can mean the difference between building your retirement and losing up to 45% of it to emergency tax. Here’s everything you need to know.

‍

The Problem: Emergency Tax You Shouldn’t Be Paying

Most UK pension providers apply PAYE (Pay As You Earn) tax automatically, even if you live in Miami, Madrid or Dubai.

That means:

• Tax deducted at source (without asking you)
• Often based on a generic emergency tax code
• Leading to 20%, 40%, or even 45% tax withheld unnecessarily

‍

Let’s say you withdraw £50,000 from your SIPP. You could lose £20,000+ straight away, just because the system doesn’t know you're a non-resident.

The Solution: What Is an NT Tax Code?

‍

An NT Code tells HMRC: “This individual is no longer a UK tax resident and lives in a country with a tax treaty. Don’t deduct UK tax from their pension.” As a result, your pension gets paid out gross, no UK tax withheld, and you settle your tax affairs in your current country of residence.

Who’s Eligible?

You can apply if all three of these apply:

1. You’re a non-UK tax resident, under HMRC’s Statutory Residence Test
2. You have UK pension income (SIPP, final salary, or defined contribution)
3. You live in a country with a Double Taxation Agreement (DTA) covering pensions

Common countries include:

USA, France, Spain, the UAE, Saudi Arabia, Oman, and many more.

‍

What Happens If You Don’t Apply?

UK pension schemes often use the standard 1257L Month 1 tax code, which works like this:

‍

You then face the burden of completing a UK tax return, reclaiming the tax, and waiting months for repayment, every year.

‍

Step-by-Step: How to Apply for an NT Code

‍

1. Confirm Your Tax Residency - Make sure you’re genuinely non-resident under UK rules. HMRC will look at days in the UK, ties to property, work, and family.

2. Trigger a PAYE Record - Request a small pension payment (e.g. £1000) so that a PAYE record is created. HMRC can’t issue an NT code without this.

3. Complete the Right Form - Most individuals will need to complete Form DT-Individual, which is used to declare your foreign residency and the UK pension income you receive. However, some countries have their own country-specific version of this form. All available forms and country-specific variations can be found on the HMRC website.

4. Get Residency Certification Locally - To obtain an NT (No Tax) code, HMRC requires evidence that you are a tax resident in your new country of residence. This usually means providing a Tax Residency Certificate issued by the relevant tax authority in your country.

Examples include:

• United Arab Emirates (UAE) – Certificate from the Federal Tax Authority (FTA)
• France – Certificate of tax residence issued by the French Tax Office
• United States – IRS Form 6166 (Letter of U.S. Residency Certification)
• Spain – Certificado de Residencia Fiscal from the Agencia Tributaria
• Saudi Arabia – Certificate from the Zakat, Tax and Customs Authority (ZATCA)
• Oman – Tax Residency Certificate issued by the Tax Authority of Oman

If you're unsure how to obtain this certificate, check with your local tax authority or visit their official website.

5. Submit to HMRC - Send the completed and certified form, with your pension details, to HMRC. Allow 12–16 weeks for processing.

‍6. Confirm It’s Active - HMRC sends the NT code directly to your pension provider. Always follow up and confirm it’s been applied, before your next withdrawal.

Common Mistakes That Cost Expats Thousands

One common mistake expats make is applying too late. It’s important to do this before taking any significant income from your pension. If you wait, you risk having a large portion of your withdrawal taxed unnecessarily. Another mistake is missing documentation, particularly tax residency proof. Without this documentation, your application may be delayed or rejected.

Some expats also end up using the wrong form. While most individuals need to complete Form DT-Individual, some countries have bespoke versions of this form. Make sure to use the correct form for your country of residence.

Lastly, unclear residency can be a problem. HMRC may question situations where your residency status is borderline. Ensure that you meet the criteria to avoid delays in processing your application.

What Pensions Qualify?

There are several types of pensions that can qualify for the NT code. SIPPs (Self-Invested Personal Pensions) are eligible, including income drawdown, UFPLS (Uncrystallised Funds Pension Lump Sum), and annuity-style withdrawals.

Workplace schemes also qualify, such as final salary pensions, AVCs (Additional Voluntary Contributions), and personal pensions. In some cases, your State Pension can qualify, depending on the Double Taxation Agreement (DTA) in place between the UK and your country of residence.

Important: You Still Have Tax Obligations

An NT code doesn’t mean “no tax ever.” It simply means that the UK will not tax your pension income. However, you still have tax obligations in your country of residence.

You will need to report your pension income in the country where you live. If applicable, you may also need to pay tax on it there. It’s essential to maintain good records of your pension income and any taxes paid to ensure compliance with your local tax laws.

Real Life: What We’ve Seen at Skybound

A client recently moved to Dubai and took £70,000 from his SIPP. Without an NT code, he lost over £28,000 to emergency tax. We helped him reclaim it, and ensured all future withdrawals are paid gross, without delay. This is the kind of planning that makes a real difference.

Apply Early, Save Big

The NT code process isn’t complicated, but it is slow. If you wait until after your withdrawal, the damage is done.  At Skybound Wealth, we specialise in this process, especially for British expats in the Middle East and Europe, and the USA. We know the paperwork, the tax offices, the timelines, and how to get it right first time.

‍

Need help applying for your NT code or reviewing your pension income strategy?  Book a call with Skybound Wealth today.

‍