In T Masters v HMRC [2025] UKFTT 967 (TC) (11 August), the First-tier Tribunal concluded that pension withdrawals taken from a self-invested personal pension (SIPP) by an individual living in Portugal were outside the scope of UK taxation. The Tribunal decided that the link to Mr Masters’ past employment remained intact despite the transfer of funds into a SIPP. As an additional point, the judges suggested that the phrase “subject to tax” in a treaty context means income must actually be taxed in the other state.
Mr Masters had accrued significant defined benefit pension rights during more than three decades of employment at Tesco. In 2016, these were transferred, in cash equivalent form of almost £6m, into a UK-registered SIPP. After leaving the UK for Portugal in March 2019, he became non-UK resident and was taxed there under the favourable non-habitual resident (NHR) regime. In the 2019/20 tax year, he withdrew over £3.5m from the SIPP. UK withholding tax of around £1.5m was applied.
When Mr Masters claimed a refund and requested a no-tax (NT) code, HMRC refused. Their position was that the SIPP was essentially an investment product, that the employment link had been broken on transfer, and that Article 17 of the UK-Portugal double tax treaty did not apply. HMRC further argued that the income could be taxed in the UK under Article 20 since it had not been “subject to tax” in Portugal.
The FTT rejected HMRC’s arguments. It found that the transfer did not amount to Mr Masters receiving the funds personally, so the connection with past employment continued. No further contributions were made to the SIPP, and withdrawals followed only a few years after the transfer, reinforcing the employment link. On this basis, the payments fell within Article 17, meaning Portugal had exclusive taxing rights. The Tribunal also noted, in passing, that even if Article 20 had been relevant, income exempt under the NHR regime would not count as “subject to tax” in Portugal, and in such circumstances the UK would not be barred from taxing it.
If you are a mobile individual with international ties, or if you are considering leaving the UK and want clarity on how your pension will be taxed, professional advice is essential. We assist clients in navigating complex cross-border pension and tax issues to ensure the right planning and treaty relief are secured.