UK Pensions and Inheritance Tax: What Every British Expat in Asia Needs to Know

The 2027 UK Pension Rule Change: What It Means for British Expats in Asia

For many British expatriates living in Hong Kong or elsewhere in Asia, a UK pension has long been seen as a secure cornerstone of their retirement and estate plans. Reliable, flexible and, until now, remarkably tax-efficient.

But that picture is about to change.

From April 2027, the UK government will close one of the most valuable inheritance tax (IHT) shelters still available: the exemption that kept pension funds outside the scope of inheritance tax. This reform, while technical in nature, could have significant consequences for British expats with UK-based pensions, turning a once tax-efficient asset into a potential 40% liability for their heirs.

For British expats, this isn’t just a small policy change, it’s a serious warning that could have major implications for family wealth.

A Quiet Corner of the Tax System Closes

Under the current rules, UK defined contribution pensions (including SIPPs and personal pensions) sit outside your estate for inheritance tax purposes.

If you die before age 75, your beneficiaries can usually inherit your pension entirely tax-free. If you die after 75, income tax may apply on withdrawals, but inheritance tax does not.

That has made pensions a discreet but powerful tool for passing wealth down the generations.

From 6 April 2027, this benefit will disappear. Any unspent pension balance will form part of your taxable estate, regardless of your age at death.

For estates above the nil-rate thresholds (£325,000 plus a potential £175,000 residence band), the portion exceeding those limits could face a 40% inheritance tax charge.

Spouses and civil partners will still benefit from exemptions, but children and grandchildren inheriting pensions may face both inheritance tax and income tax on what remains.

In short, the UK pension system is moving from one of the most inheritance-friendly to one of the most exposed.

Residency Does Not Mean Immunity

Many British expats assume that once they have moved abroad, whether to Hong Kong, Singapore or Australia, their estates automatically escape UK inheritance tax. Unfortunately, the new rules make that assumption risky.

From April 2025, the UK is shifting to a residence-based inheritance tax regime. Under this approach, anyone who has been UK-resident for 10 out of the previous 20 tax years can still have their worldwide assets treated as within the UK IHT system.

That means if you left the UK less than a decade ago, or return periodically for work or family, you may still fall within HMRC’s reach in 2027.

The new system is designed to capture globally mobile professionals who have spent significant parts of their career in Britain but hold assets overseas, including pensions.

A Hong Kong British Expat Client Example

Take David, a 65-year-old executive who moved to Hong Kong in 2015 after 25 years in the UK. He holds a £1 million SIPP and intends for it to support his family when he is gone.

Under current rules, David’s pension sits outside his estate for IHT. But under the 2027 rules, that same pension could add £1 million to his taxable estate. If his other assets push him above the thresholds, his heirs could face an inheritance tax bill of around £270,000, before even accounting for income tax on withdrawals.

It is a scenario many British expats have not considered, but one that could dramatically alter the legacy they leave behind.

Why Early Planning Matters

The window between now and April 2027 may feel distant, but meaningful estate planning rarely happens overnight.

Pension structures, residency reviews, wills and beneficiary arrangements all take time to reassess and realign. Starting early allows flexibility, while waiting until the rules are in force often means limited choices and reactive decisions.

In practice, early planning can help you:

• Assess exposure – Understand how your pension interacts with your broader estate and which assets might now fall within UK tax scope.

• Explore distribution options – Accessing or redistributing some pension wealth before 2027 could be worth considering in certain cases.

• Strengthen estate liquidity – Identify how any tax due might be funded, whether through cash reserves, insurance or other means.

• Clarify your residency status – Determine whether the new 10/20 rule might affect you and explore planning routes to reduce exposure.

• Revisit wills and nominations – Ensure your estate planning documents reflect your current circumstances, especially if your family spans multiple jurisdictions.

The Bigger Picture: Planning for Life, Not Just Tax

While the headlines focus on inheritance tax, the underlying issue runs deeper: how to ensure your wealth supports the life you have built abroad and the people you care about most.

For British expats in Hong Kong and across Asia, cross-border wealth planning is about balance. Balancing opportunity and security, today’s lifestyle and tomorrow’s legacy, the flexibility of living globally with the reality of the UK’s ever-evolving tax net.

At Pyrmont Wealth, financial planning is not simply about numbers or tax rules. It is about helping clients make confident, values-led decisions that preserve what truly matters: family, freedom and future security.

The Bottom Line

From April 2027, UK pensions will lose their long-standing inheritance tax protection. British expats in Asia who still hold UK pensions face a narrowing window of opportunity to prepare.

Taking action now, before the rules take effect, could be the difference between your family keeping the full value of your pension and seeing nearly half of it lost to tax.

Let’s Talk Before Time Runs Out

If you have a UK pension and want to understand how the 2027 changes might affect you, we can help.

Our team at Pyrmont Wealth specialises in supporting British expatriates across Asia with cross-border financial and estate planning. We can help you assess your exposure, review your pension strategy and design a plan that aligns with both your financial goals and your family’s future.

Now is the time to get clarity, while time is still on your side.

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