If you live in Australia, it’s easy to adopt an “out of sight, out of mind” approach to any UK-based pension funds you may have accrued.
After all, you may have left the UK years ago and built your financial life in Australia. But if you still have pension assets in the UK, changes to Inheritance Tax (IHT) rules from April 2027 could affect your estate planning.
The position is further complicated by changes to the UK’s residence rules introduced in April 2025.
What’s changing?
From 6 April 2027, most unused pension funds and pension death benefits will be brought within the scope of UK IHT.
This is a significant change as unused pension funds are currently exempt from IHT. Pensions have traditionally offered considerable flexibility when passing wealth to the next generation, particularly where funds have been left invested rather than withdrawn during retirement.
From April 2027, however, unused pension wealth can increase your estate’s value for IHT purposes.
The change does not necessarily mean that IHT will be payable on every UK pension. It depends on the value of your overall estate, your residence status, and the nature of your pension arrangements.
Therefore, for UK expats in Australia, understanding how these factors interact is particularly important.
Your UK residence history could still affect your IHT position
Moving to Australia does not necessarily mean you immediately leave the UK IHT net. Since April 2025, the previous domicile-based system has been replaced by a long-term UK residence test, making your UK tax residence history an important part of your estate planning.
Broadly, you can be a long-term UK resident if you have been UK tax resident for at least 10 of the previous 20 tax years. Importantly, this status can continue after you leave the UK – potentially for up to 10 tax years, although the period can be shorter depending on your previous UK residence history.
While you remain a long-term UK resident, your worldwide assets may fall within the scope of UK IHT. This could be particularly important if you built up substantial pension wealth before moving to Australia, as your UK pension and other assets may form part of a wider worldwide estate for IHT purposes.
Once you cease to be a long-term UK resident, your position can change significantly. However, this does not necessarily mean that all UK assets are outside the scope of UK IHT. For example, UK property can remain relevant to your IHT position even after your long-term UK residence period has ended.
Understanding how the new residency rules interact with your pension, other UK assets, and wealth in Australia is therefore an important part of assessing your potential IHT exposure.
Find out more: Major changes to UK IHT rules could affect your estate planning. Find out why
Transferring your UK pension could be highly advantageous
If you intend to retire permanently in Australia, it may be worth considering whether retaining your UK pension is still the most appropriate strategy.
One option is to transfer your UK pension funds to an Australian pension arrangement that is considered a Qualifying Recognised Overseas Pension Scheme (QROPS).
Consolidating your retirement arrangements in the country where you expect to live and retire can offer benefits. This could simplify your retirement planning and reduce practical issues associated with holding assets in different currencies and tax jurisdictions.
Perhaps most importantly, it creates a highly advantageous tax scenario: you benefit from tax relief while growing your funds in the UK. You can then draw income tax-free from your Australian super.
A pension transfer should therefore be considered as part of a wider retirement and estate-planning strategy, rather than simply as a response to the April 2027 changes.
Find out more: 7 key facts about QROPS you need to know if you have pension assets in the UK
It’s important to start thinking about the changes before they happen
With the new pension IHT rules taking effect from 6 April 2027, there is still time to review your position.
That does not mean you should rush to transfer your pension or make other major changes. In many cases, the most appropriate strategy may be to leave your UK pension where it is.
For others, a transfer could potentially form part of a wider strategy.
The right decision depends on several factors, including:
- Your UK residence history
- The size and type of your pension
- Your Australian superannuation and investments
- Your expected retirement income
- What you ultimately want to leave to your family.
It is also important to consider how you plan to draw your pension. Taking more income during retirement could reduce the value remaining in the pension at death, but it could also create other tax and investment considerations.
Your UK pension funds need to form part of your estate planning
The April 2027 changes mean that your UK pension is no longer simply a retirement-planning question.
You need to consider your UK pension alongside your wider financial position, not in isolation. Your UK residence history, Australian assets, UK property, and intended retirement strategy can all interact.
With the rules changing, reviewing your UK pension now could help you determine whether it remains appropriate for both your retirement and your plans for passing wealth to the next generation.
Find out more: How the UK IHT changes could affect your UK pension
Get in touch
As a leading advice company with extensive experience in UK-Australian financial planning, we can help you model different scenarios and assess whether transferring your UK pension to a QROPS could make sense.
If you want to discuss any of the issues you’ve read about in this article, please get in touch with us.
Please note
The value of your investment can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only; it does not take into account your personal objectives, financial situation, or needs.
Please do not solely rely on anything you have read in this article and ensure that you conduct your own research and get expert advice to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.