RPSM13102360 - Technical Pages: International: Application of charges to non-UK schemes: Annual allowance: Example pension input amount - defined benefits

Examples of a pension input amount for a defined benefits arrangement

Example 1

Jenny is a currently-relieved member of a currently-relieved non-UK pension scheme whose defined benefits rights increase by £100,000 in the 2006/07 tax year (calculated using the 10:1 factor). Her employer does not make any contributions to the scheme as it is on a “contributions holiday”. Her total income from the employment to which those benefits rights related in that pension input period was £300,000. But only £225,000 of that income was UK taxable earnings under section 10(2) ITEPA 2003. The appropriate fraction of TE/EI will therefore be

This fraction is applied to the increased benefits rights. This means that her pension input amount for the tax year in respect of this scheme is £75,000.

However, if in 2006/07 she also made £100,000 contributions on which UK tax relief was obtained her pension input amount would be £100,000 instead (see RPSM13102350).

Note: HMRC recognises that it may not be possible to work out the amount of the employer’s contributions to a defined benefits arrangement in respect of an individual. If no attempt was made to include employer contributions in the EI figure used when calculating an individual’s pension input amount for the 2006/07 and the 2007/08 tax years there is no HMRC requirement that the pension input amount is calculated on the correct basis. In principle a re-calculation would result in a lower pension input amount, but there might not be any tax implications for the individual even it proved possible to make such a re-calculation.

Example 2

Jane is a currently-relieved member of a currently-relieved non-UK pension scheme whose defined benefits rights increase by £80,000 in the 2008/09 tax year (calculated using the 10:1 factor). She contributes £50,000 to the scheme.

The total amount of her employment income (EI) from the employments to which those benefits relate is £200,000 (excluding her employer’s contribution to the scheme). Her UK taxable earnings (TE) from these employments (excluding non-remitted overseas income that is not chargeable to UK tax and her employer’s contribution to the scheme) are only £120,000.

The appropriate fraction (TE/EI) is

As her contributions were £2,000 greater than that amount her pension input amount for the tax year in respect of this scheme is £50,000.