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 (the 'five-year rule'), or
• is a Crown Servant, or a spouse/civil partner of a Crown Servant and have earnings subject to UK tax.

*It's worth noting that relevant UK earnings are to be treated as not being chargeable to income tax if due to a double taxation agreement, they are not taxable in the UK. 

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 relevant UK earnings chargeable to UK tax. 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 is 100% of their relevant UK earnings, chargeable to UK tax, 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 relevant UK earnings taxed in the UK.

If they do continue to have relevant UK earnings taxed in the UK, tax relievable contributions can be based on these earnings, or £3,600 a year if higher. Once they stop having relevant UK earnings subject to UK tax, they can’t receive tax relief on personal contributions unless they meet another one of the definitions of relevant UK individual. 

Example 1

Let’s look at Louie. He moved overseas in November 2023 and was paying £5,000 a year into a UK pension scheme.

Assuming Louie had relevant UK earnings of at least £5,000 in the 2023/24 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 2024 and that can be paid for five tax years including 2024/25 – that is up to 5 April 2029.

As far as HMRC is concerned, contributions can continue indefinitely after April 2029 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 2029. If Louie returns to the UK for any time during a tax year, that ‘resets the clock’ for the five-year rule.

Example 2

Maddie earns £3,500 a month payable on the first of every month (in arrears) and pays a gross pension contribution of £400 a month to a personal pension plan.

On 2 August 2024, she leaves the UK to live and work in France. Her UK earnings for 2024/25 are therefore £14,000 (four months at £3,500 a month) and she can continue to pay £400 a month until the end of the tax year and receive tax relief.  

For the next five tax years, that is from 6 April 2025 to 5 April 2030, the maximum gross tax-relievable contribution she’ll be able to make is £300 a month (£3,600 a year). From 6 April 2030, she will not be entitled to tax relief on any contributions she makes to a UK registered pension scheme.

If she had left on 2 May 2024, she would only have earnings of £3,500 in 2024/25 and so could only pay £400 a month for a total of nine months in 2024/25 as £3,600 would be the maximum amount of contributions she could pay with tax relief.

Example 3

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.

Example 4

Lexie is being seconded abroad by her employer for several years. She will be paid by the UK company whilst she is working in the UK and by the overseas company whilst on secondment. She will be paid by the UK company whilst she is working in the UK and by the overseas company whilst on secondment.

In the tax year she leaves the UK, she'll have relevant UK earnings up to the point she leaves the country. This means she can pay tax relievable contributions in that tax year up to the higher of those earnings and £3,600 (gross). For the next 5 tax years, she can continue to pay and get tax relief on her contributions up to £3,600 a year. After that, no further tax relief will be given. Some providers will not accept any personal contributions that aren't eligible for tax relief.

Employers get corporation tax relief by deducting their contributions from taxable profits. While Lexie's abroad, they'll continue to be able to do this so long as they can show that the contribution is still an allowable business expense for the company.

Can a seafarer pay into a UK registered pension?

Yes.

The Seafarer’s Earnings Deduction means 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 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 additional tax relief 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.

What about employer contributions?

In theory, an employer can pay any amount for an employee regardless of their salary. Employers will receive UK corporation tax relief, where they pay UK corporation tax, 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.

Company and employer contributions and tax relief

What automatic enrolment duties apply to overseas employers or employees?

An overseas employer has automatic enrolment duties if they have employees working or 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 would have automatic enrolment duties for employees seconded from overseas if they deemed to be working or ordinarily working in the UK. If they don’t ordinarily work in the UK, there would be no automatic enrolment employer duties for these employees.

Assessing the workforce: How to identify the different categories of worker - automatic enrolment detailed guidance for employers

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 and live in the UK. 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.