I moved back to the UK. Can I cash in my Israeli pension early without paying the 35% Israeli tax?

Not without a real risk of losing that argument, at least for now. Section 87 of the Income Tax Ordinance is built to keep pension savings in the fund until retirement age, and money taken out early is hit with a 35% Israeli tax charge that the fund deducts before paying you. Returning Britons often rely on the pensions article of the UK-Israel convention, which says that pensions paid to a resident of one country are taxable only in that country. But in an interim decision in late 2025 in Civil Appeal 1740-12-24, the District Court judge hearing exactly that claim, brought by a taxpayer who went back to England in 2020, remarked that it did not look easy to persuade the court that England alone may tax the money. The final judgment has not yet been given.

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Detailed Answer

The dispute sits where two sets of rules meet. On the domestic side, Section 87 aims to preserve pension, severance and provident savings until retirement, and a withdrawal that does not meet its conditions is taxed at a flat 35% instead of being paid out as a pension later. On the treaty side, the 1962 UK-Israel convention's pensions article, Article XI in the wording substituted by the Protocol signed on 17 January 2019 and in force from 28 October 2019, provides that "pensions and other similar remuneration" paid to a resident of one territory "shall be taxable only in that territory." Section 196 of the Ordinance gives a treaty priority over domestic law, so the argument is a serious one. Its weak point is characterisation. The question is whether a lump sum taken years before retirement, often including severance money, is a pension at all for treaty purposes, or a release of accumulated savings and deferred pay that Israel may tax as Israeli-source income. The taxpayer in Civil Appeal 1740-12-24 lived in Israel from 1994 to 2020 and withdrew his severance, pension and study-fund balances in December 2020. Before hearing him further, the court required a guarantee of NIS 20,000 by 27 November 2025 to keep the appeal alive.

For someone already back in Britain the practical choice is between a known cost now and a contested position later. If you withdraw, the Israeli fund will deduct the 35% unless the Israel Tax Authority has issued an approval saying otherwise, and it is unlikely to issue one on a treaty reading the courts have not accepted. Your remedy is then to claim the tax back: a refund claim or return, a written objection within 30 days of any assessment under Section 150, and an appeal to the District Court under Section 153 that typically runs for 18 to 30 months, conducted in Hebrew while you live in the UK. Evidence of UK residence starts with a certificate of residence from HMRC, and the withdrawal still has to be reported to HMRC on the foreign pages of your Self Assessment return, where its UK tax treatment is a separate question. The alternative is to leave the money invested and draw it as a pension from retirement age, when the treaty position is much stronger and the Israeli fund can pay into a UK account. Our answer on how a UK resident's Israeli pension is taxed under the treaty explains the withholding approval you would need at that stage.

In Practice: An early withdrawal caught by Section 87 of the Income Tax Ordinance is taxed at 35%, deducted by the fund. A UK resident who disputes it under the UK-Israel convention's pensions article objects to the Israel Tax Authority within 30 days of an assessment under Section 150, then appeals to the District Court under Section 153, a process that typically takes 18 to 30 months. In Civil Appeal 1740-12-24 the court required a NIS 20,000 guarantee just to keep the appeal going, and the final ruling will decide whether the treaty argument works at all.

When to Consult a Lawyer

• You are considering an early withdrawal of a large Israeli pension or severance balance, where 35% of the sum is at stake and it may pay to wait for the final judgment in Civil Appeal 1740-12-24.
• The fund has already deducted 35% and you want to reclaim it under the treaty, because the Section 150 objection deadline is short and the appeal that follows is run in Hebrew.
• Your balance mixes pension, severance and study-fund money, since each element can be taxed differently and a single withdrawal request can trigger the least favourable treatment for all of them.

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Speak With an Israeli Attorney

An Israeli tax lawyer can compare the cost of withdrawing now with waiting for retirement age, pursue a treaty refund claim and follow the District Court's final ruling on your behalf.

Contact us for a confidential initial consultation.