Pension contributions for overseas customers

It is possible for contributions to continue although what can be paid depends on who wants to make contributions and whether the member’s earnings will be subject to UK income tax on moving abroad. 

If a member continues to have relevant UK earnings chargeable to UK income tax (see the section of HMRC’s Pensions Tax Manual titled ‘Earnings that attract tax relief' here) after moving abroad, then personal contributions can continue to be made as before. The limit on personal contributions for tax relief purposes would still be the greater of £3,600 gross pa and 100% of their relevant UK earnings in that tax year.

It’s important to note 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 United Kingdom.

If a member doesn’t have relevant UK earnings chargeable to UK income tax on moving abroad (e.g.  they’re being paid and taxed overseas), then they will only be able to receive tax relief on personal contributions of up to £3,600 gross pa for five full tax years following the tax year in which they move abroad. The member must have been resident in the UK when they became a member of the pension scheme.

Note that many providers do not accept personal contributions that are not eligible for tax relief (for members under the age of 75), so the maximum tax relievable contribution is also the maximum contribution that those providers will accept.

A UK employer can continue to contribute whether a person has relevant UK earnings or not, and corporation tax relief should be granted where contributions have been made wholly and exclusively for the purposes of the employer’s trade, profession or investment business. The employer’s local inspector of taxes will deal with any claim for tax relief. If contributions are to be made by a non-UK resident employer, then UK corporation tax relief would not normally be allowable, but it may be possible for the employer to make a claim under the tax system of the country in which they are based.

In practice, if a member moves abroad they will need to inform their pension provider so that appropriate action can be taken depending on the person's circumstances. 

Rebecca has a group personal pension (GPP) plan. She makes personal contributions of £6,000 pa and her employer also contributes £6,000 pa, and her current salary is £60,000.

In March 2020, she moved to Germany to work. She remains employed by the UK-based company but is now taxed in Germany. The following table shows the how the contributions would have to change following her move abroad, assuming the intention was for the employee and employer contributions to continue:

* As her provider will only accept contributions that are eligible for tax relief (for members under the age of 75), her personal contributions must reduce to the maximum of £3,600 for the first five full tax years after she leaves the UK, then reduce to nil after this.

It is possible for contributions to continue, although what can be paid depends on who wants to make contributions and whether a member’s earnings will be subject to UK income tax on moving abroad. 

Personal contributions to an occupational pension scheme are made under the ‘net pay arrangement'. This means that they are deducted from gross pay before income tax is calculated so an employee will receive tax relief on any contributions at their highest marginal rate. If an employee is going to be working for the same employer and will continue to have relevant UK earnings chargeable to UK tax on moving abroad, then personal contributions can continue to be made as before under the net pay arrangement if the employee remains on the UK payroll. The limit on personal contributions for tax relief purposes would be the greater of £3,600 gross pa and 100% of relevant UK earnings.

If an employee doesn’t have relevant UK earnings chargeable to UK tax on moving abroad (e.g. they will be moving onto the payroll of an overseas employer), then personal contributions will not be eligible for UK tax relief through the net pay arrangement as the employee is not likely to be on a UK payroll. This means that the employee can’t use the net pay arrangement to pay £3,600 for five tax years after they leave the UK – ‘relief at source’ is the only method by which someone without relevant UK earnings chargeable to UK tax can claim tax relief on contributions up to £3,600. See the section 'Contributions can continue to a member's existing personal pension or stakeholder arrangement?'

A UK employer can continue to make employer contributions for an employee seconded abroad and corporation tax relief should be granted where contributions have been made wholly and exclusively for the purposes of the employer’s trade, profession or investment business. The employer’s local inspector of taxes will deal with any claim for tax relief.

In practice, the only likely situation where contributions will continue to a UK occupational pension scheme on a person moving abroad is where an employee is moving to work for the same employer or an employer in the same international group. Occupational pension schemes are not as flexible as personal pensions in being able to accommodate changes in someone’s circumstances.

HMRC rules don’t prevent contribution amounts being changed. However, a personal pension/stakeholder provider would only be able to accept ‘new money’ (whether personal or employer contributions) in respect of an overseas individual if they had the relevant authorisation from the Financial Conduct Authority (FCA).

For example, and assuming a provider was authorised to sell only to people living in the UK, if someone was paying £100 per month gross as a personal contribution and then moved abroad, they could continue to pay, and receive tax relief on, that amount or a lower amount for the five full tax years after they move abroad (this assumes they will have no relevant UK earnings after leaving the UK). They couldn’t increase their contributions after they move abroad (for example, up to the £3,600 pa gross limit allowed under HMRC rules), as this would breach the provider’s FCA authorisation. Similarly, a request to make a single contribution (as either a personal or employer contribution) or receive a transfer payment would not be possible.

Note: Providers are unlikely to be able to accept new pension business from US persons (e.g. US citizens, US taxpayers) due to US legislation.

Contributions to, or benefit accrual under, a registered pension scheme will count towards the annual allowance, the money purchase annual allowance (if a member has flexibly accessed any of their pension benefits) and the tapered annual allowance (for high earners). The normal rules about benefit crystallisation events will apply, so most benefits will be tested against the lifetime allowance.

Any annual allowance tax charge is payable regardless of where the member lives. This charge is not covered by any double taxation agreement in place between the UK and the country of residence.

Note – any tax-free benefits taken from a plan held in the UK are deducted from the individual's lump sum allowance and lump sum and death benefit allowance. Any benefits taken which exceed either of these limits would be fully subject to income tax at the individual's marginal rate.

You can find more information on contributions for members who move overseas in HMRC's Pensions Tax Manual: