Pension Planning Under the Post-April 2025 Non-Dom Tax Rules

The abolition of the non-domicile tax regime and its replacement with the Foreign Income and Gains framework from April 2025 was the most significant change to the UK's treatment of internationally mobile individuals in a generation. The new regime is in many respects simpler — a clean four-year exemption for new arrivals rather than the complex remittance basis with its annual charge and elaborate remittance rules. But for pension planning, the interaction between the FIG regime and UK pension rules creates several important nuances.

This guide is relevant to two main groups: individuals arriving in the UK from abroad who are considering pension contributions and drawdown; and UK nationals who have been abroad and are considering the planning implications as they approach long-term residency status.

The FIG Regime: A Summary

The Foreign Income and Gains regime applies to individuals who have not been UK-resident in any of the previous 10 consecutive UK tax years and who then become UK-resident. For the first four tax years of UK residency, all foreign income and gains are exempt from UK tax, regardless of whether they are remitted to the UK. This is a clean exemption — no remittance basis claim required, no annual charge.

Foreign income and gains include:

• Overseas employment income (where taxed only overseas)
• Foreign investment income (dividends from overseas companies, interest from overseas bank accounts)
• Foreign capital gains on overseas assets

They do not include:

• UK-source income of any kind
• UK capital gains
• Income that arises in the UK or that the UK has taxing rights over under the relevant DTT

UK Pension Income Is Not FIG-Exempt

This is the critical point for pension planning under the FIG regime: UK pension income is UK-source income and is not within the FIG exemption.

Whether you draw income from a UK SIPP, a defined benefit scheme, or a personal pension, that income is UK-source. HMRC taxes it as income in the normal way — under PAYE, through the pension provider, at your marginal rate. The FIG exemption does not apply.

During the four-year FIG period, a new UK arrival who is drawing down their UK SIPP will pay full UK income tax on those withdrawals, at marginal rates. This is the same treatment that any UK-resident pension member receives. The FIG regime provides no advantage in this area.

The Implication: Manage Pension Timing Carefully

Because UK pension income is fully taxable in the UK even during the FIG period, but foreign income is exempt, there may be planning opportunities around the timing of pension drawdown:

• During the FIG period, if you can live off foreign income (which is FIG-exempt), there may be an argument for deferring pension drawdown until after the four-year period ends — particularly if you expect your marginal tax rate to be lower after the FIG period.
• Conversely, the FIG period may be a window during which UK pension drawdown is the only UK-taxable income you have — meaning the personal allowance may fully offset modest pension withdrawals, creating an effective 0% rate on limited drawdown.
• Very large pension withdrawals during the FIG period would be fully taxable, so the FIG period is not a time to crystallise the bulk of a pension fund unless the tax arithmetic supports it.

This is a planning judgement that requires modelling of the full income picture — UK pension income, foreign income (exempt under FIG), and other UK sources.

Pension Contributions During the FIG Period

Contributing from FIG-Exempt Foreign Income

If your income during the four-year FIG period consists primarily of foreign income and gains (exempt), you have no UK-taxable earned income to support pension contributions above the £3,600 gross minimum. Tax relief requires taxable earned income — the mechanics of pension contribution relief are designed to return tax already paid, not to provide relief on untaxed income.

This means you cannot make substantial pension contributions and claim UK tax relief on FIG-exempt income.

Contributing from UK Earnings

If, during the FIG period, you have UK employment income — perhaps from a UK employer as part of your role here — that income is fully subject to UK income tax. Pension contributions from this income attract normal tax relief (up to 100% of UK earnings, subject to the annual allowance).

The most pension-efficient approach during the FIG period is therefore: contribute to the pension from UK-taxable earnings, not from foreign income. Use the tax-relieved pension wrapper to shelter UK earnings, while allowing FIG-exempt foreign income to fund lifestyle costs without any UK tax.

The £3,600 Gross Minimum

The £3,600 gross minimum contribution (£2,880 net, with £720 government top-up) remains available to anyone with a National Insurance number, regardless of income or residence. This minimum contribution can be made from any source — including FIG-exempt foreign income — and the government top-up is a statutory benefit, not technically a "tax relief" in the same sense.

The Position After Four Years: The Arising Basis

After the four-year FIG period expires, the individual pays UK tax on all income and gains as they arise — the "arising basis". This is the standard UK tax treatment for all UK residents.

From this point:

• Foreign income and gains become fully UK-taxable
• UK pension income continues to be taxable as before
• All income from all sources is assessed and taxed in the UK

For those who have deferred pension drawdown during the FIG period, the transition to arising basis changes the calculus. Drawing pension income after the FIG period means it is taxed alongside other (now fully taxable) income. The planning horizon shifts — it may now be worth drawing pension income in years when other income is lower, or using pension income to fill the personal allowance efficiently.

Long-Term Residency and UK Inheritance Tax

From April 2025, the concept of Long-Term Residents was introduced: individuals who have been UK-resident in 10 or more of the previous 20 tax years are fully subject to UK inheritance tax on their worldwide estate, even if they leave the UK before death (subject to a "tail" period of 3 to 10 years depending on length of UK residency).

This is a fundamental change from the previous position, where non-domiciled status could protect overseas assets from UK IHT even after very long periods of UK residence.

Pensions and Long-Term Resident IHT

The interaction between the Long-Term Resident (LTR) rules and pensions has two dimensions:

Pension death benefits from 2027: From April 2027, unspent pension funds are planned to fall within the member's estate for UK IHT purposes (the current exclusion of pensions from the death estate is being removed). For LTR individuals, this means that UK pension funds will be subject to UK IHT on death at 40%, in addition to income tax when drawn by beneficiaries.

Overseas pensions: Where a long-term resident has an overseas pension (whether a QROPS, a foreign employer scheme, or another overseas arrangement), the LTR rules may bring that pension within the scope of UK IHT if it forms part of the "estate" under UK IHT analysis. However, the treatment of overseas pension assets under IHT is a complex and evolving area. The legislation and HMRC's interpretation of it continue to develop, and specialist advice is essential.

QROPS for New UK Arrivals

An overseas national arriving in the UK from abroad who holds an overseas pension — including a QROPS in Malta, Guernsey, or another jurisdiction — faces the question of what to do with it.

Keeping the Overseas Pension

An overseas pension can be maintained while the individual is UK-resident. Depending on the relevant DTT, income from the overseas scheme may be:

• Taxable in the UK only
• Taxable in the overseas country only
• Taxable in both (with a credit mechanism)

During the FIG period, an overseas pension that qualifies as "foreign income" may be exempt under FIG — which could make the FIG period a good time to draw from the overseas pension rather than the UK SIPP (if the overseas pension income qualifies as FIG-exempt). This is a nuanced determination — not all overseas pensions will qualify — and requires specialist analysis.

Transferring an Overseas Pension to the UK

Transferring an overseas pension (QROPS or foreign scheme) to a UK SIPP or registered pension scheme is possible in principle — but may trigger tax charges both in the UK and the overseas jurisdiction. The OTC mechanism runs in reverse: a transfer from an overseas scheme to a UK scheme is an overseas transfer, and the applicable charges depend on the specific schemes involved.

Planning Summary for Non-Doms (Post-April 2025)

1. During the FIG period: UK pension income is fully UK-taxable — not FIG-exempt. Drawdown timing matters. Foreign pension income may be FIG-exempt — check the DTT.

2. Pension contributions during FIG: Contribute from UK earnings to maximise tax relief; the FIG-exempt foreign income is not an efficient source for pension contributions.

3. After four years: All income is taxable in the UK. Plan pension drawdown around the overall income tax position.

4. Long-Term Residency: After 10 years, global IHT exposure applies. With pensions entering the IHT net from 2027, estate planning around pensions becomes important earlier.

5. QROPS as an entry tool: Maintaining an overseas pension outside the UK system — where DTT and FIG analysis allows — may offer income efficiency during the FIG years.

How Global Investments Can Help

The intersection of the FIG regime, non-dom transition, and UK pension planning is one of the most technically demanding areas in expatriate financial planning. Global Investments works with UK-based international professionals, newly arrived high earners, and those approaching long-term residency status.

We provide modelling of the optimal pension drawdown and contribution strategy across the FIG period and beyond, integrate pension planning with IHT strategy, and coordinate with tax advisers on the FIG and LTR interaction.

Tax rules in this area are subject to ongoing legislative development. This guide reflects the rules as at 2026 and should not be taken as a substitute for current, regulated advice. Pension investments can fall as well as rise in value. Seek specialist regulated advice before making decisions about pensions under the FIG regime.