Personal pension contributions explained

There are several factors to consider when planning personal pension contributions for your clients, particularly around how much they can contribute each year for tax relief purposes. Join Senior Technical Consultant, Lisa Webster, in this Bitesize Technical session, ‘Personal pension contributions explained’, as she takes you through:

• Who can make personal pension contributions
• Who qualifies as a relevant UK individual
• How much clients can contribute and still receive pension tax relief

Watch the video now or scroll down to read through the key talking points.

Key insights from Bitesize Technical

Who can make personal pension contributions?

For a client to receive tax relief on contributions, they must be a relevant UK individual.

Who qualifies as a relevant UK individual?

If your client has relevant UK earnings, or was resident in the UK sometime in the tax year, they’ll qualify as a relevant UK individual for that tax year. They may also qualify if they have a UK employer but are based overseas – as long as their pay is subjected to UK income tax. Crown employees based overseas, including their spouse or civil partner, also qualify.

If a client who is a UK resident joins a UK pension scheme and then moves abroad, they’ll remain a relevant UK individual for five tax years after their residency ends.

How much can clients contribute and still receive tax relief?

Most clients will be able to contribute up to 100% of their relevant UK earnings in the tax year the contribution is made. Your clients could also contribute the basic amount, up to £3,600 per year. This applies even if their earnings are below this level, or there are no earnings at all.

There’s a specific caveat where your client must be under the age of 75. No tax relief is given after a client’s 75th birthday on personal pension contributions, (regardless of earnings or residency).

What counts as relevant UK earnings?

The main types of relevant UK earnings are employment earnings and income from a trade or vocation. It’s also possible to have income from patents. They must be taxable in the UK to qualify as relevant UK earnings. If tax was not payable due to a double taxation agreement, it wouldn’t be included for personal pension contribution tax relief.

Employment earnings include:

• Basic salary
• Overtime
• Bonus
• Commissions
• Self-employed income
• Statutory sick pay
• Maternity / paternity pay

Income from trades / vocations includes:

• Income as an individual
• Income from partnerships

It’s important to note that the maximum tax relievable contribution will be 100% of relevant UK earnings. The annual allowance also needs to be taken into consideration when calculating these so clients don’t get tax charges.