Our pensions expert discusses the rules for a reader who is moving overseas
Thursday 23 Jul 2020 Author: Tom Selby

I’m moving abroad to Europe but plan to continue working
for a UK company and paying UK tax. Will I still be able to pay into my UK pensions and receive the same tax benefits as I do at the moment?

Paul


Tom Selby, AJ Bell Senior Analyst says:

Because pensions benefit from generous tax treatment, they are subject to various restrictions.

The amount you can save in a pension, for example, is limited for most people to the lower of 100% of ‘relevant UK earnings’ or £40,000 a year.

Those without relevant UK earnings can still save in a pension, but this is restricted to £3,600 a year (inclusive of basic-rate tax relief).

Relevant UK earnings include employment income such as wages, bonus payments, overtime and commission and must be assessed for tax purposes the UK. They don’t, however, include pension income or income generated from buy-to-let properties.

You can read full details of what counts as relevant UK earnings here. 

Relevant UK earnings aren’t the only consideration, however – you also need to be a ‘relevant UK individual’ to save in tax-incentivised products like pensions and ISAs.

HMRC’s guidance states that an individual is a relevant UK individual in a tax year if they:

• have relevant UK earnings chargeable to income tax for that tax year;

• are resident in the United Kingdom at some time during that tax year;

• were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme;

• or have for that tax year general earnings from overseas Crown employment subject to UK tax;

•  or are the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax.

The third bullet point is probably the key one for someone in your circumstances and something you should discuss with your employer before you leave for Europe.

If you are currently a UK resident and member of a pension scheme, this should provide you with a five-year window during which you can live outside the UK but continue to pay into your pension and receive tax relief based on your relevant UK earnings. You should also be able to continue receiving employer contributions to your pension.

If you qualify under the five-year rule and for any reason didn’t have UK relevant earnings during your period living outside the UK, you should still be able to claim tax relief up to the £3,600 limit.


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Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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