Introduction

Once a pension sharing order is obtained from the courts in England and Wales, the division of pension assets between UK residents is usually straightforward. The beneficiary will typically have a pension in the UK that can receive their share. Failing this, if they don’t already have a pension, one can either be sourced by themselves or financial advice is readily available to provide suitable recommendations.

For non-UK resident beneficiaries who are awarded a pension share of a UK pension, a myriad of challenges emerges, ranging from accessibility and tax considerations to investment decisions and currency risks.

This article will help you to understand the challenges a non-UK resident will face so that when you speak with one, you can help them to understand the depth of planning they will need to undertake.

Accessibility

One of the primary challenges faced by non-UK resident beneficiaries is the limited accessibility to UK pension providers. Most UK pension providers have stringent residency requirements, accepting only UK residents. This poses a significant hurdle for overseas beneficiaries who may not already hold a UK pension capable of receiving the court-ordered pension share. The search for a suitable pension provider abroad becomes a critical concern, and the lack of familiarity with the UK pension landscape further complicates the process.

Alternative options, such as identifying UK pensions that are marketed to overseas clients can be considered. Additionally, establishing communication channels with UK pension providers to navigate residency restrictions and negotiate exceptions becomes crucial in facilitating a smooth transition for the beneficiaries.

Tax implications

Another challenge arises in the form of tax implications. Non-UK residents receiving a court-ordered pension share must carefully consider the tax laws of both the country they reside in and the UK. The interaction between these two tax regimes can result in complexities that can be confusing.

Understanding the tax implications involves not only determining the tax treatment of the pension share itself, but also considering potential tax liabilities upon withdrawal from the pension. The beneficiary should collaborate with tax specialists familiar with both the beneficiary’s country of residence and the UK tax system to ensure comprehensive advice tailored to the unique circumstances of the case.

Investment decisions

For non-UK resident beneficiaries unfamiliar with the intricacies of the UK financial market, making informed investment decisions poses a significant challenge. Selecting appropriate investments requires a nuanced understanding of the economic climate, market trends and regulatory frameworks, factors that may be unfamiliar to those residing outside the UK.

To address this challenge, it is important to collaborate with financial advisors who are comfortable discussing the international aspects of investments within a pension for a non-UK resident. Crafting a diversified and risk-appropriate investment strategy that aligns with the beneficiary’s financial goals becomes paramount to safeguarding the value of the pension share over time.

Currency risk

The disparity between the currency of the pension and the beneficiary’s country of residence introduces currency risk, a consideration often overlooked. The pension, denominated in British pounds, may face fluctuations in value when converted to the beneficiary’s local currency, impacting the overall financial outcome.

To mitigate currency risk, currency management solutions can be discussed, such as moving the denomination of the underlying pension from British pounds to another major currency at an advantageous time. Establishing a framework that considers potential currency fluctuations and outlines risk mitigation measures helps the non-UK resident beneficiary protect the value of their pension share in the face of volatile exchange rates.

Conclusion

Non-UK resident beneficiaries of court-ordered pension shares face a multifaceted set of challenges, from navigating accessibility issues to addressing tax implications, making informed investment decisions, and managing currency risks. Legal professionals play a pivotal role in guiding these individuals through the complexities of pension division, collaborating with financial and tax experts to ensure a comprehensive and tailored approach to safeguarding their financial future. As the landscape of international divorce continues to evolve, a proactive and collaborative approach among legal, financial and tax professionals becomes indispensable in securing the best possible outcome for non-UK resident beneficiaries.

Investments can rise and fall and you may get back less than what you started with. This article is for guidance only and does not constitute individual financial advice. The Financial Conduct Authority does not regulate tax planning. Cross Border Financial Planning are not tax advisers and do not offer tax advice.