Contributions to registered schemes for overseas individuals

Who are relevant UK individuals?

A relevant UK individual is someone who:

• Has relevant UK earnings chargeable to UK income tax for that tax year.
• Is resident in the UK, or
• Was resident in the UK in one of the previous five tax years and, at the time they were resident, became a member of a UK registered pension scheme, or
• Is a Crown Servant, or a spouse/civil partner of a Crown Servant and have earnings subject to UK tax.

What are relevant UK earnings? 

• Employment income
• Self-employed income
• Income from patents
• Earnings from overseas crown employment.

HMRC Pensions Tax Manual - PTM044100 - Contributions: tax relief for members: conditions (opens in a new window)

How much tax relief is available?

Relevant UK individuals, who have relevant UK earnings of £3,600 or more, can receive tax relief on contributions up to 100% of their earnings.  Any contributions above the annual allowance will be subject to an annual allowance tax charge.

Relevant UK individuals who have either no relevant UK earnings or relevant UK earnings of £3,600 or less will only receive tax relief on gross contributions up to £3,600 each tax year. Non-relevant UK individuals, who don't have relevant UK earnings will receive no tax relief on their contributions. The ability to contribute for non-UK individuals will also depend on the pension provider allowing this.

The five-year rule

If someone moves overseas, in the year they leave the UK, their maximum tax relievable contributions will be 100% of their UK earnings in that tax year or £3,600 if greater. For the next five tax years they can still make gross personal contributions of up to £3,600 a year and get tax relief. The contributions must be to a pension scheme they joined before they left the UK. This assumes they have no earnings taxed in the UK. If they do continue to have earnings taxed in the UK, tax relievable contributions can be based on these earnings, or £3,600 a year if higher.

As an example, let’s look at Louie. He moved overseas in November 2021 and was paying £5,000 a year into a UK pension scheme.

Assuming Louie had earnings of at least £5,000 in the 2021/22 tax year, before moving overseas, he could continue to pay £5,000 gross in that tax year. His maximum tax relievable contribution is reduced to £3,600 gross a year from 6 April 2022 and that can be paid for five tax years including 2022/23 – that is up to 5 April 2027.

As far as HMRC is concerned, contributions can continue indefinitely after April 2027 at any level. But the contributions won’t get tax relief. Most providers won't accept personal contributions that don’t get tax relief, so they’d have to stop collecting contributions after 5 April 2027. If Louie returns to the UK for any time during a tax year, that ‘resets the clock’ for the five tax year rule.

Read our case study (opens in a new window) for another example of how this works in practice.

Can a seafarer pay into a UK registered pension?

Yes.

The Seafarer’s deduction means that the individual’s earnings are subject to UK income tax but a deduction from the tax due can be made of up to 100%, depending on the length of time in the tax year that they’re away from the UK.

As the earnings are subject to UK income tax, they count as relevant UK earnings even although they don’t pay UK tax (or reduced UK tax). That allows the provider to claim basic rate tax relief from HMRC. No higher rate tax can be claimed by the individual as no higher rate tax is paid.

More general information about tax and seafarers can be found at: Seafarers Earnings Deduction: tax relief if you work on a ship (opens in a new window).

What about employer contributions?

In theory, an employer can pay any amount for an employee regardless of their salary. Employers will receive corporation tax relief subject to it being wholly and exclusively for the purpose of the trade or profession.

If the employer's contribution, together with all other contributions to money purchase schemes and the value of any benefits accrued in defined benefit schemes exceeds the annual allowance, the individual will be liable to a tax charge on the amount over and above the annual allowance, not the employer.

Examples of pension contributions for overseas individuals

Example 1

Marius is a member of his employer's final salary scheme and has been working in Germany on secondment since 2022. He is currently paid £35,000 each year and is taxed in the UK. The maximum gross employee contributions eligible for tax relief is £35,000.

Example 2

Didier is a member of a group personal pension plan and he's going to work in France for an overseas subsidiary of his current employer. For the first two years, Didier will still be paid by the UK company (£30,000 a year) and from the third year, he will be paid in Euros and taxed under the French tax system.

The maximum gross employee contributions eligible for tax relief is £30,000 in the tax year he left, and £30,000 in the first tax year after he left, then £3,600 each year for the following four tax years. Eligibility for tax relief will then stop unless Didier becomes a 'relevant UK individual' again.

What automatic enrolment duties apply to overseas employers or employees?

An overseas company has automatic enrolment duties if they have employees working and ordinarily working in the UK. If the employee is seconded temporarily to the UK, they’re not regarded as ordinarily working in the UK and the employer will have no automatic enrolment duties in respect of them. 

A UK employer will have automatic enrolment duties for overseas employees if they are working or ordinarily working (opens in new window) in the UK, for example if they were temporarily seconded overseas. 

If they don’t ordinarily work in the UK, there would be no automatic enrolment employer duties for these employees.

Do United States (US) citizens have to report their UK pension on their US tax return?

Most providers can accept US citizens if they're a relevant UK individual or have relevant UK earnings. There are no reporting requirements on the providers to the US Internal Revenue Service (IRS), but the individual themselves may have to report to the IRS.  It’s always best to consult a suitably qualified financial adviser or accountant in these matters.