Geraint Davies, founder and managing director of Montfort, a firm formed to specifically provide essential financial planning to migrants and established the very first UK-to-Australia pension transfer solution, told SMSF Adviser that whether a QROPS falls within the UK’s inheritance tax regime will depend on several factors.
“These include the member’s long-term UK residence ‘tail’ and whether the pension funds originated from a UK pension arrangement,” Davies said.
Davies said the impact on UK inheritance tax for UK pensions transferred into a QROPS could challenge long-held assumptions about offshore retirement planning.
Jeff Bowman, an international tax specialist, said the UK Government’s enacted inheritance tax (IHT) reforms are creating significant uncertainty for pension savers, particularly those who have transferred retirement funds into QROPS (or are about to).
Davies continued that for deaths from 6 April 2027, unused pension funds and many pension death benefits are expected to be brought within the scope of UK inheritance tax. The move represents one of the most significant changes to pension taxation in recent years and could reshape estate-planning strategies that have been relied upon for decades.
“For many individuals, unused pension pots have traditionally sat outside their taxable estate. This has often been possible because pension trustees or scheme administrators retained discretion over who received death benefits, keeping the funds beyond the reach of inheritance tax,” Bowman said.
“The UK Government’s enacted legislation seeks to change that position. While the reforms are primarily directed at UK-registered pension schemes, Montfort is increasingly being asked whether overseas pension arrangements, particularly QROPS, will remain protected. The answer is far from straightforward.”
Bowman added that, historically, many QROPS structures were established with inheritance tax efficiency in mind.
“Death benefits could often be paid outside the member’s estate, helping families avoid an inheritance tax charge,” he said.
“However, the effectiveness of this planning may be significantly reduced if the individual remains within the UK’s inheritance tax net. The Government is no longer focusing solely on whether assets sit inside or outside an estate. The policy direction is to bring pension wealth itself into consideration for inheritance tax purposes.”
Davies said that before April 2027, being outside the estate frequently meant no inheritance tax liability. However, after April 2027, pension assets may be considered for inheritance tax even where traditional discretionary structures remain in place.
“Therefore, you can’t assume that a transfer to a QROPS automatically shields pension wealth from inheritance tax,” he said.
“There may still be circumstances where a QROPS produces a different outcome, particularly when the individual has genuinely left the UK tax system and is no longer within the long-term UK resident tail for inheritance tax purposes.
“Additionally, there could be a different outcome if the pension qualifies as excluded foreign property under the relevant rules, or double taxation agreements or treaty provisions apply. Each case will depend on the individual’s circumstances and the interaction between UK tax law and the rules governing the overseas pension arrangement. We are still looking into this matter.”
Davies gave the example of an individual who transfers a UK Self-Invested Personal Pension (SIPP) into an Australian-based QROPS and subsequently died after 6 April 2027 while still within the UK’s inheritance tax regime.
“Under the direction of the enacted legislation, it would be unsafe to assume that the pension escapes inheritance tax simply because it is held overseas. The Government’s stated objective is to reduce the use of pension arrangements as inheritance tax shelters, meaning overseas structures may face greater scrutiny and UK tax charges than in the past,” he said.
Bowman added: “Is it possible that the ATO will be asked to collect inheritance tax from pensions on behalf of HMRC? The ATO and HMRC do help each other collect direct income and capital gains taxes on behalf of the other.”
He continued that although the enacted changes have been completed through the UK legislative process, detailed guidance and technical regulations are expected soon and pension holders, expatriates and QROPS members should review their past and future arrangements sooner rather than later.
“What was once considered established inheritance tax planning may no longer provide the same level of protection after April 2027,” Davies added.
“For thousands of individuals with UK-origin pension wealth held overseas, the coming years could determine whether long-standing retirement and succession plans remain fit for purpose.”
Bowman added that UK defined benefit pension schemes are also within the scope of the above UK inheritance tax changes in some instances.
