Tribunal allows expat's appeal confirming that SIPP withdrawals were not subject to UK tax

In Trevor John Masters v HMRC [2025] UKFTT 967 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal, finding that withdrawals from a self-invested personal pension (SIPP), by a non-UK resident, were not taxable in the UK, under the terms of the UK-Portugal Double Tax Convention (DTC).

Background

Mr Masters, a former Tesco executive, accrued a defined benefit pension entitlement under Tesco’s pension scheme from 1983 to 2015 (the DB scheme). In 2016, he transferred his defined benefit pension to a UK-registered SIPP. Mr Masters subsequently became resident in Portugal under the favourable non-habitual resident (NHR) regime. In the 2019/20 tax year, Mr Masters withdrew c.£3.5m from the SIPP, on which UK income tax of c.£1.5m was withheld at source. 

Mr Masters claimed that the withdrawals were “pensions paid in consideration of past employment”, within the meaning of Article 17(1)(a) of the UK-Portugal DTC and therefore taxable only in Portugal. Accordingly, Mr Masters applied to HMRC for a no tax (NT) code to prevent UK tax being deducted. This application was rejected. In his 2019/20 tax return, Mr Masters claimed relief in respect of the tax that had been withheld in relation to the SIPP withdrawals.

HMRC subsequently enquired into Mr Masters' 2019/20 tax return and rejected his claim for relief. In particular, HMRC concluded that the transfer of benefits from the DB scheme to the SIPP, severed the required causal link between the pension and Mr Masters’ past employment. In HMRC’s view, once the funds were transferred to the SIPP, they ceased to be “pensions paid in consideration of past employment” and instead became payments under a separate pension arrangement, falling outside Article 17(1)(a) of the UK-Portugal DTC. As the withdrawals were therefore taxable in the UK, because they were not "subject to tax" in Portugal, they were taxable in the UK. 

HMRC issued a closure notice on that basis. Mr Masters appealed the closure notice and HMRC's refusal of his claim for an NT code, to the FTT.

FTT's decision

The appeals were allowed.

The key issue before the FTT was whether the SIPP withdrawals were paid "in consideration of past employment". The parties were in agreement that a sufficient causal connection between past employment and the SIPP withdrawals was required in order for that condition to be met.  

Mr Masters' position was that the relevant causal connection had not been broken and was sufficient to meet the condition because, amongst other things: his entitlement under the DB Scheme was funded directly by, and as a result of, his employment with Tesco; the funds remained within a UK pension scheme at all times (and Mr Masters did not obtain any form of legal ownership of those funds before his receipt of the SIPP withdrawals); and Mr Masters did not contribute any further funds to the SIPP and the only subsequent increase in the SIPP funds was due to investment returns.

HMRC argued that the causal connection had been broken between the SIPP withdrawals and Mr Masters' employment with Tesco because, amongst other things: Mr Masters’ employment was not a condition of the SIPP; the funds were voluntarily taken from the DB scheme whilst the employment was ongoing and placed into the SIPP; the SIPP was fundamentally an investment product; and there was not merely a transfer of capital but also the opening of a new pension product, unconnected with Mr Masters' employment.   

The FTT noted that the degree of relevant causal connection was clearly sufficient and unbroken where an employer and employee (through salary sacrifice) contribute to an occupational pension scheme, which then pays a pension or similar remuneration. Equally, the relevant causal connection was clearly broken where an employee receives a salary from their employer and then pays some of that salary into a SIPP, which subsequently pays a pension or similar remuneration. 

While noting that Mr Masters' facts fell somewhere between the two extremes, the FTT concluded that, if paid direct to Mr Masters, the Tesco funds would be "paid in consideration of past employment" and the mere fact that the funds were transferred from the DB scheme to the SIPP, did not break the relevant causal connection between Mr Masters’ employment with Tesco and the subsequent SIPP withdrawals paid to Mr Masters. The FTT also confirmed that a payment from a SIPP could, in principle, be "paid in consideration of past employment". 

The FTT then considered whether there were any other facts that reduced the degree of relevant causal connection between Mr Masters’ employment with Tesco and the SIPP withdrawals to such an extent that the SIPP withdrawals were not in fact “paid in consideration of past employment”. In finding that there were no such facts, the FTT noted that Mr Masters had built up his entitlement in the DB scheme over a period of 32 years and 8 months of his employment with Tesco; the funds were the only contribution made to the SIPP; Mr Masters did not make any subsequent contributions to the SIPP; and the funds had been in the SIPP for only four years before the SIPP withdrawals were made, which was a proportionately short period of time compared to Mr Masters’ period of pensionable service with Tesco. The FTT concluded  that all of these facts maintained the necessary degree of relevant causal connection between the SIPP withdrawals and Mr Masters’ past employment with Tesco, so that the SIPP withdrawals were “paid in consideration of past employment”

The FTT therefore held that the SIPP withdrawals were within Article 17 of the DTC and, as Mr Masters was resident in Portugal at the time of the SIPP withdrawals, the DTC allocated the taxation rights over those withdrawals to Portugal. 

Comment

This decision provides some important guidance on the application of double tax treaties to pension transfers and withdrawals. The case confirms that a transfer to a SIPP will not necessarily break the employment link for treaty purposes and provides a degree of clarity for expatriate taxpayers and their advisers on the interaction between UK pension rules and DTCs. Pensioners relocating abroad may be able to rely on treaty protection if the funds remain clearly traceable to past employment.

The case is also a reminder of the complexities and potential pitfalls that can arise when transferring or consolidating pension arrangements, particularly where a change in tax residence is involved. Small differences in structure, timing, or contribution history, can have significant tax implications in both jurisdictions. Individuals should seek specialist advice before transferring pensions or drawing benefits overseas, as missteps can inadvertently forfeit treaty relief, or trigger unexpected UK tax liabilities.

The decision can be viewed here.