Transferring a UK Pension to Israel: QROPS and Tax

British olim often arrive determined to bring everything with them, and the pension sits at the top of the list. Consolidating a UK pension into a single Israeli fund sounds tidy and sensible. It is usually the wrong move, and attempting it the wrong way can hand HMRC a charge that swallows more than half the pot. The reassuring part, which most people do not discover until they have paid an adviser to tell them, is that you almost never need to move the fund at all to enjoy it from Israel.

This guide is for anyone who holds a UK personal, workplace, or state pension and is planning aliyah or already lives in Israel as an oleh. It explains why the transfer route is usually closed, what it costs if you force it, and the far cheaper structure that the UK-Israel tax treaty and the ten-year new-immigrant exemption make available.

Why There Is No Israeli QROPS

The mechanism people have in mind is a QROPS, a Qualifying Recognised Overseas Pension Scheme. HMRC maintains a list of overseas schemes it recognises as valid destinations for a tax-relieved transfer out of a UK pension. The problem for olim is blunt: Israel has essentially no schemes on that list. Israeli pension and provident funds are not generally structured to meet HMRC's QROPS conditions, so there is no clean Israeli landing pad for the money. This is not a gap an adviser can engineer around with a clever wrapper. It is the reason the transfer route is, for practical purposes, closed.

The Charges If You Force It

Push a transfer into a non-recognised Israeli scheme anyway and HMRC treats it as an unauthorised payment. That triggers an unauthorised-payment charge and surcharge that together can reach roughly 55% of the amount transferred. Put plainly, forcing a GBP 400,000 pension out of the UK system into something Israeli can cost more than GBP 200,000 in UK tax before a shekel reaches you.

There is a second charge worth understanding even though it usually is not the Israeli problem. The Overseas Transfer Charge is a flat 25% on transfers to a genuine QROPS that fall outside a set of permitted exceptions. In the Budget of 30 October 2024 the UK removed the exemption that had covered QROPS based in the European Economic Area and Gibraltar, so transfers to those schemes now attract the 25% charge unless you are resident in the same country as the scheme. The upshot for a British oleh is that neither route is attractive: there is no Israeli QROPS to receive the fund, and routing it through a QROPS elsewhere now generally costs 25% on the way out.

Common Mistake: Acting on a cross-border adviser's pitch to "move your pension out of the UK" before checking the HMRC position. A transfer into a non-recognised Israeli arrangement is an unauthorised payment carrying charges of up to 55%, and a transfer to an EEA or Gibraltar QROPS has attracted the 25% Overseas Transfer Charge since 30 October 2024. Both are assessed by HM Revenue and Customs through the scheme administrator, and the charge is deducted before the money lands, so it cannot be undone once the transfer completes. Get the UK charge modelled in writing before signing anything.

The Better Route: Leave It, Draw It

For almost every British oleh the sensible structure is to leave the pension where it is and draw it while living in Israel. Two features make that attractive, and together they usually beat any transfer.

The first is the treaty. The UK-Israel double tax arrangement is the 1962 Convention as amended by the Protocol that entered into force on 28 October 2019. Its pensions article assigns "pensions and other similar remuneration" to the country of residence, so a UK personal or workplace pension drawn by someone resident in Israel falls within Israel's taxing rights rather than Britain's, and the same pound is not taxed in both places. Our explainer on the UK-Israel tax treaty for British non-residents works through which income sits where.

The second feature is more powerful still. A new immigrant enjoys a ten-year exemption on foreign-source income, which reaches a UK pension drawn during the decade after aliyah.

In Practice: Under Section 14(a) of the Income Tax Ordinance 1961, a new oleh is exempt from Israeli tax on foreign-source income, including a UK private or workplace pension, for ten years from the date Israeli residency begins, as assessed by the Israel Tax Authority (Rashut HaMisim). A pension drawdown of, say, NIS 200,000 in a year during that window carries no Israeli income tax at all. The relief runs from the date of aliyah and cannot be backdated, so the residency start date should be planned before you arrive, not discovered afterward.

After the Ten Years

When the exemption ends, Israel begins taxing your worldwide income, and the UK pension is part of that picture. Two reliefs then soften the charge, and you elect for whichever gives the lower result on your annual return.

Section 9B of the Income Tax Ordinance 1961 exempts 35% of a qualifying foreign pension, so only the remaining 65% is taxed at Israeli rates. Section 9C takes a different approach, capping the Israeli tax on the pension at no more than the tax the source country would have levied on it, which protects a retiree whose UK marginal rate would have been low. The two are alternatives rather than a stack, and which one wins depends on the size of the pension and your other Israeli income.

In Practice: After the ten-year window closes, an oleh drawing a UK pension relies on Section 9B of the Income Tax Ordinance 1961, which exempts 35% of the foreign pension, or on Section 9C, which caps the Israeli charge at the source-country tax. The election is made each year on the annual return (Form 1301, due 30 April) filed with the Israel Tax Authority, and it can be switched from year to year as your circumstances change. Israeli marginal rates reach 47% plus a 3% surtax on high incomes, so the choice between the two reliefs is worth real money.

The State Pension Is a Different Animal

A UK State Pension is not a private or workplace pension, and it is treated differently in two respects that British retirees routinely get wrong.

First, on the money itself: the UK State Pension is not frozen in Israel. Israel is one of the countries with a reciprocal social security agreement under which the UK pays the annual increase, so your State Pension is uprated each April exactly as it would be for a pensioner in Britain. This is the opposite of the position in Australia, Canada, and New Zealand, where the pension is frozen at its starting rate. If you have read otherwise, you have read wrong, and the difference compounds over a long retirement. The pension is paid by the Department for Work and Pensions through its International Pension Centre, and you can have it sent to a UK or an Israeli account.

Second, on tax: the State Pension is income, and under the treaty its taxing right follows residence in the same way as a private pension, so during the ten-year window it too is free of Israeli tax. The genuine exception across all of this is a pension paid for government service, which the treaty deals with separately and may leave taxable in the UK. A civil-service, NHS, teacher, police, or armed-forces pension therefore needs its own check before you assume Israel has the taxing right.

The Tax-Free Lump Sum and Timing

UK rules let you take a Pension Commencement Lump Sum, generally up to 25% of the fund, free of UK tax, subject to the Lump Sum Allowance of GBP 268,275. Timing this around aliyah matters. Taken while you are an Israeli resident inside the ten-year window, the lump sum is foreign-source income covered by the Section 14(a) exemption, so it is free on both sides. Taken carelessly after the window, it can meet an Israeli charge that a little planning would have avoided. Note also that the minimum age to draw a UK pension is 55, rising to 57 from April 2028, which affects anyone planning an early retirement to Israel. Because your UK pension income and your Israeli residency now interact with your UK reporting too, our guide to Israeli bank accounts and UK tax reporting covers the accounts side of the same move.

Practical Checklist

• Do not chase a QROPS transfer into Israel; there is no Israeli scheme to receive it cleanly.
• Model the HMRC unauthorised-payment charge in writing before agreeing to move any pension abroad.
• Fix your Israeli residency start date deliberately, because the ten-year exemption runs from it and cannot be backdated.
• Plan large drawdowns and any tax-free lump sum to fall inside the ten-year window where possible.
• Separate your pensions by type: private and workplace, State Pension, and government-service, because the treaty treats them differently.
• Confirm your State Pension is being uprated and paid correctly by the DWP International Pension Centre.
• After year ten, compare the Section 9B and Section 9C reliefs on each annual return rather than defaulting to one.

Speak With an Israeli Attorney

The pension question is where British olim lose the most money to avoidable tax, almost always by transferring when they should have drawn. We advise on how your UK pensions are taxed once you live in Israel, help time drawdowns and lump sums within the ten-year exemption, and coordinate with a UK pension specialist where a transfer is genuinely being considered. For the wider move, see our guide to retiring in Israel for UK nationals.

Contact us for a confidential initial consultation.