Double Taxation Treaties and Overseas Pension Transfers

What Are Double Taxation Treaties?

Double Taxation Treaties (DTTs) are legal instruments between countries that ensure individuals and companies do not pay tax twice on the same trade, asset, or income in both the country of source and the country of residence. 

As such, if a British person who is tax resident in Spain holds assets in the UK, the DTT prevents both countries from taxing the same capital value and/or income of that investment, property, or savings account.

Key income types typically covered by UK tax treaties include:

• Employment income (salaries, wages, bonuses)
• Self-employment and business profits
• Rental income from property
• Interest and dividends from investments
• Royalties
• Pensions and retirement income
• Capital gains on assets like property or shares

Treaties use two main methods to eliminate double taxation:

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Inheritance Tax

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Where DTTs Do Not Apply

It’s important to note that not all taxation is covered by DTTs. Inheritance Tax is a good example, where few DTTs exist with the UK. Consequently, assets can be taxed twice, depending on various factors. These include:

• Where assets are situated
• The tax residence of the donor and beneficiary
• The type of asset

Differences Between IHT Systems

Another consideration is the differences between IHT systems. The UK taxes the deceased's estate, whereas most European countries tax beneficiaries.

Additionally, a UK estate can be left to whomever the settlor nominates. This could, in effect, be anyone. Most European models are proscriptive and use ‘forced heirship rules’ to determine who receives what share of the total taxable estate.

The UK’s Residence-Based IHT System

In April 2025, a new system was introduced in the UK to determine where Inheritance Tax is payable and by whom. 

Essentially, the old ‘Domicile’ regime was replaced by a more modern ‘Residence-based’ system. This means it’s important to be aware of whether you are within the reach of the UK tax authorities or your country of residence. 

Long-term residence and Non-Long-Term residence rules will determine where any liabilities fall.

As a rule of thumb, Non-Long-Term Residence is achieved after an individual has been out of the UK for at least 10 tax years. 

Relief is available for those who return to the UK; it’s also important to know how ‘UK Situs’ assets might still be taxable. This will include personal pensions and SIPPs from April 2027.

Planning Opportunities for Non-Residents

Everyone’s situation is unique, and preparing early for the implications of IHT is vital. We would always recommend seeking qualified tax advice from a company that understands the tax systems of both your country of residence and the country where the assets are held.

The new rules have provided an interesting tax planning opportunity for Long Term Non-Residents in relation to the ‘situs’ of assets, regarding where they are held. 

In 2027, and on current reading of the legislation, personal pensions will always be liable for UK IHT. Similarly, any UK situs assets could also be liable.

Whilst transferring pensions out of the UK into QROPS has become prohibitive due to the Overseas Transfer Charge, which isn’t included in any DTT, other investments and savings can be moved to more tax-friendly environments. 

A simple tax-planning exercise would be to withdraw the Tax Free Cash before becoming tax resident elsewhere, then reinvest it in a non-UK General Investment Account.

This might also work for a main residence and would certainly help remove ISAs and deposit accounts from the UK IHT system.

Capital Gains Tax

CGT and Double Tax Treaties

First, I would emphasise the importance of seeking qualified tax advice before making any changes to asset status.

Capital Gains Tax (CGT) is typically covered in most DTTs, and careful planning can ensure that previously untaxed investments, such as ISAs and main residences, remain untaxed after moving to another country.

The key is knowing where to reinvest and when to adjust your financial plan. Tax Free Cash lump sums from pensions aren’t subject to CGT in the UK, but probably would be if taken after full residence in your new country. As mentioned previously, it’s best to withdraw funds before this date.

Timing Asset Disposals and Reinvestment

The same applies to main residences. Try to sell your UK house before moving, then repurchase in the next tax year in your new country of residence.

Ditto ISAs. Sell whilst UK resident, then reinvest when resident in your new country.

The question then becomes where to reinvest. Spain, France, and Portugal allow investment into compliant Insurance Bonds, which aren’t subject to CGT or Dividend Income. 

Each country has its own rules regarding qualifying for the favourable tax status of your investments; however, the result is the same. Protection from CGT and Dividend tax.

Income Tax

Income Covered by DTTs

Income Tax is also covered by most DTTs. Income is derived in several different forms:

• Pensions
• Property rental
• Dividends
• Royalties
• Salaries

Again, it’s important to employ the services of a suitably qualified tax adviser to assess current and future liabilities. Tax mitigation strategies might include establishing a non-taxed (NT) code with your pension provider, applying for special tax schemes, such as those available to Digital Nomads, or even the Beckham rule for Spanish tax residents.

Tax on all income is usually paid in your country of residence. In some cases, offsetting income paid in your home country with that in your country of residence is possible. This needs to be considered in relation to income from countries with which no DTT exists.

For example, the Isle of Man and Gibraltar. Those territories don’t have any specific DTTs with other countries, but they do have Tax Information Exchange Agreements (TIEAs), which address some cases of double taxation. A good example of this is EU-based QROPS holders who have Gibraltar or IOM schemes.

Property

Tax Treatment of Property Assets

As property is an immovable asset, it’s clearly impossible to relocate any holdings you may have. So, in most circumstances, IHT will arise in the country in which it is situated. This may not be the case for income and CGT, however. As such, this is another issue to discuss with your tax adviser.

Is it possible to choose the country in which property is taxed? Much will depend on how the property is owned. Within a company structure, there may be advantages to being taxed in either your home country or your country of residence.

Tax strategies exist that allow joint ownership with heirs to be established. This should be checked to see if this type of structure applies to you, and the DTT may help.

How Treaties Decide Where You Are Taxed

Before treaty tax residency is determined, you must first determine your domestic tax residency status. 

Each country has its own rules and tests for determining tax residency. The UK's statutory residence test was introduced in 2013 to determine an individual's domestic tax status; other countries have their own domestic tests.

The complexity arises when an individual meets the tax residency criteria of both the UK and another country—known as dual residency.

When dual residency occurs, the treaty's "tie-breaker" rules apply and determine which country will treat the individual as tax resident for treaty purposes. Most UK Treaties follow this standard hierarchical order:

1. Permanent home — if you have a permanent home in only one country then that country wins.
2. Centre of vital interests — where are your personal and economic ties strongest (family, main business, bank accounts).
3. Habitual abode — where do you live day-to-day on a normal basis
4. Nationality — if still tied after the above, then which country's passport do you hold?
5. Mutual agreement — if nothing else works, then the tax authorities must negotiate directly.

Important distinction: treaty residency can differ from domestic residency. You may be considered UK resident under the Statutory Residence Test, but be treated as resident only in Portugal under the UK–Portugal treaty.

This affects whether you pay tax on all of your worldwide income or primarily on income generated in that specific country.

Understanding your tax residency is important for planning salary structures, reporting rental income and pension arrangements. 

If you get it wrong, you could face unexpected UK tax liability or miss out on legitimate tax relief.

The UK Statutory Residence Test (SRT)

In the United Kingdom, the Statutory Residence Test is the legal framework for determining an individual's tax residence in a particular tax year. The test was introduced by HMRC in April 2013, replacing older UK Tax Residency Tests. It is made up of three key elements of the test:

Part 1: Automatic Overseas Tests: If you meet certain conditions, you will be considered non-resident for UK tax purposes. These conditions include:

You have been non-resident in the UK in all three prior tax years and have spent less than 46 days in the UK

You have been resident in the UK in one or more of the last three tax years and have spent less than 16 days in the UK

Part 2: Automatic UK Tests: If you satisfy any of the conditions below, you will be automatically classified as a UK tax resident:

You have spent more than 183 days in the UK during that tax year

You have no other home available to you anywhere else in the world, and you have used that home as your sole residence for at least 91 consecutive days in total during that tax year, including at least 30 days of that period in that tax year.

You work full-time in the UK

Part 3: Sufficient Ties Test: If neither automatic test has been satisfied, you move on to consider your ties to the UK:

• Family Tie (your spouse or dependent minors live in the UK).
• Accommodation Tie (you have access to UK accommodation that you can use during the year).
• Work Tie (you worked in excess of 40 days in the UK).
• 90 Day Tie (you spent 90+ days in the UK in either of the previous two tax years).
• Country Tie (you have been UK resident for a greater length of time than in any other country).

The greater the number of ties you have, the fewer days you may spend in the UK before being regarded as a UK tax resident.

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As the SRT is applied to every UK tax year (6th April to 5th April), the record-keeping required for travel and working days in the UK is extremely important. 

An example of this is an individual who spends 200 days in the UK in tax year 2025/26 would most likely be a UK tax resident, whereas someone spending 60 days in the UK could be either a UK tax resident or not, depending on their ties to the UK.

Once a person has determined under the SRT that they are a UK tax resident, the next consideration is treaty residence (where applicable) to assess any conflicts of interest between UK and another state's taxation laws.

If you're commuting daily between Birmingham and Dubai, or splitting your time between the West Midlands and Southern Spain, the difference of a few days spent in each country can have a significant impact on your tax liability and specialist tax advice is usually beneficial.

Countries With Double Taxation Agreements With The UK

Currently (as of 2026), the U.K. has approximately 130 Comprehensive Double Taxation Agreements ("DTA") in force. As such, most international expatriate locations and investments will fall under these agreements. Some well known DTA's include:

• Europe: France, Germany, Spain, Italy, Portugal, Ireland, Switzerland, Netherlands, Cyprus, Greece
• North America: USA, Canada
• Asia/Pacific: Australia, New Zealand, Japan, China, India, Singapore, Hong Kong
• Middle East: UAE, Israel, Saudi Arabia
• Other: South Africa, Brazil, Mexico

There are also several DTAs that are relevant to many U.K. expats:

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It should be noted that treaties are reviewed periodically under a protocol or can undergo significant changes at any time. 

For example, a DTA signed in 1975 is likely to contain significantly different terms than one signed in 2015. Therefore, before making any decisions, always refer to the most up-to-date version of the DTA.

For reference, all countries are listed on the GOV.UK website, along with a link to the full legal text and HM Revenue & Customs ("HMRC") guidance.

Summary

The application and availability of Dual Tax Treaties can work in your favour if considered in context with your overall financial planning strategy.

The first port of call is your Independent Financial Adviser, who can explain the options available. If other professional financial service providers are needed, they can work together to ensure your position is optimised.

Conclusion: Expert Guidance on Double Tax Treaties

Double Tax Agreements are a powerful tool when navigating cross-border taxation, but their application is rarely straightforward. 

Differences in tax systems, asset types, residency rules, and recent legislative changes mean that professional planning is essential to avoid unnecessary tax exposure and to identify legitimate planning opportunities.

Axis Financial Consultants specialises in helping internationally mobile individuals structure their assets efficiently, taking full advantage of DTTs while remaining fully compliant. 

If you hold assets across borders or are planning a move abroad, contacting Axis Financial Consultants early can help ensure your tax position is clear, strategic, and optimised.

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