In Trevor John Masters v HMRC [2025] TC09607, the First Tier Tribunal (FTT) found 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 Double Tax Treaty (DTT).
Mr Masters became an employee of an entity in the corporate group now headed by Tesco PLC (Tesco) on 2 July 1979, and joined the Tesco pension scheme on 7 March 1983.
- Mr Masters made employee contributions totalling £607,680 into the scheme over the period from 7 March 1983 to 21 November 2015, when the scheme closed for future benefit accrual.
- The scheme was registered with HMRC and was a contracted-out Defined Benefit occupational pension scheme.
- Tesco made Employer pension contributions into the scheme.
- Mr Masters' entitlement under the scheme was funded directly by, and as a result of, his employment with Tesco.
- Payments out of the scheme were in respect of his past employment with them.
- Mr Masters' employment ceased around June 2017.
- In April 2016, the cash equivalent (£5,968,074) of Mr Masters' defined benefit pension entitlement was transferred into a Self-Invested Personal Pension (SIPP), a type of UK-registered pension scheme.
- Following the transfer, Mr Masters made no further contributions to the SIPP.
- Most of the funds, except for cash kept aside for fees, were invested in managed portfolios. It was Mr Masters' choice as to which managed portfolios the funds were invested in.
- Mr Masters was UK resident up to and including 2018-19. He left the UK on 18 March 2019 to live in Portugal and was non-UK resident in the 2019-20 tax year.
- He was a Non-Habitual Resident (NHR) in Portugal in the 2019 and 2020 calendar years and benefited from the Portuguese NHR scheme (this was abolished from 1 April 2020 for new Portuguese residents).
- The NHR scheme allowed for tax exemptions in Portugal on foreign-source pension income, where it is taxed at source under a Double Tax Treaty (DTT) in the other country, or it was not considered to be obtained in Portugal.
- Mr Masters withdrew a total of £3,521,150.08 from his SIPP in the 2019-20 tax year, when he was non-UK tax resident and NHR in Portugal.
- UK Income Tax of £1,562,169 was deducted at source on the withdrawals.
- The funds remained within a UK pension scheme at all times, and Mr Masters had no legal ownership of the funds before his receipt of the SIPP withdrawals.
- The withdrawals were reported on Mr Masters' Portuguese tax return, but were exempt from Portuguese Income Tax under the NHR scheme.
- On 30 September 2019, Mr Masters applied for an NT tax code to stop UK tax being deducted at source on his SIPP withdrawals. He also requested a refund of the UK tax already withheld on his previous withdrawals.
- HMRC rejected the request on the basis that under the DTT:
- The withdrawals were not pensions or similar remuneration paid 'in consideration of past employment'.
- The payments did not fall within Article 20 (Income Not Expressly Mentioned) of the UK-Portugal DTT because they were not income on which he was 'subject to tax' in Portugal.
- Following a statutory review, which upheld HMRC's stance, Mr Masters Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- The transfer to the SIPP was not sufficient to break the relevant causal connection with Mr Masters' employment with Tesco.
- Although Article 18 of the DTT does not set out circumstances in which payments from an individual retirement scheme, such as a SIPP, may be paid in consideration of past employment, it is not determinative.
- It would be possible for a SIPP to be funded by employer contributions and employee salary sacrifice payments throughout the period of employment, so a payment from that SIPP would meet the examples set out in the OECD commentary on Article 18.
- Payments from a SIPP can meet the condition of being paid in consideration of past employment.
- The transfer amount, if paid directly to Mr Masters, would have been paid in consideration of past employment.
- The funds were only held in the SIPP for four years before the withdrawals, which is a proportionately short period compared to Mr Masters' employment with Tesco.
- None of the facts broke or reduced the causal connection with Mr Masters' employment.
- The SIPP withdrawals were within Article 17 of the DTT and, as Mr Masters was resident in Portugal at the time, Portugal had the first right to tax the withdrawals.
The appeal was allowed.
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