Only personal contributions that are eligible for UK pension tax relief at source can be paid into your SIPP. To obtain UK tax relief at source you must be classed as a relevant UK individual.
You are a relevant UK individual for a given tax year if you:
- have relevant UK earnings chargeable to income tax for that tax year; or
- are resident in the United Kingdom at some time during that tax year; or
- were resident in the UK at some time during the five tax years immediately before the tax year in question and were also resident in the UK when you joined the pension plan; or
- you or your spouse have, for that tax year, general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).
If you fall within category b), c) or d) above and you do not have relevant UK earnings, the maximum member contribution is the basic amount (currently £3,600 including tax relief).
As a general rule, most income that is earned and assessable for income tax in the UK counts as relevant UK earnings.
Income that generally does NOT count includes:
- Pension income.
- Most property rental income.
- The first £30,000 of a redundancy payment.
- Income earned in the UK but not subject to UK income tax due to a double taxation agreement with another country where you are liable for tax.
Examples of earnings that count as relevant UK earnings can be found on the HMRC website here: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings.
A summary of some types of relevant earnings is provided below:
- Employment income such as salary, wages, bonus, overtime and commission providing it is chargeable to tax under Section 7 (2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA).
- Income derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership) chargeable under Part 2 Income Tax (Trading and Other Income) Act 2005.
- Rental income is generally not relevant earnings. Some rental income may be included if it relates to UK or EEA furnished holiday lettings under Part 3 of Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).
- Patent income, where the individual alone or jointly devised the invention for which the patent in question is granted, but only if it falls under specific tax categories.
- General earnings from an overseas Crown employment which are subject to tax in accordance with section 28 of ITEPA 2003.
The above is not a complete list of relevant earnings. If you are in any doubt as to whether earnings, on which you are reliant to justify the amount of contribution being paid, are relevant UK earnings, then you should seek professional advice.