Relevant UK earnings
The levels of tax relief available depend on the member's relevant UK earnings in the current tax year.
These are the earnings available to base a pension contribution on. Generally, all earned income is relevant earnings.
It’s sometimes easier to think about what are not relevant earnings and this includes pension income, dividends and most rental income.
HMRC define relevant earnings as:
- employment income such as pay, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)
- income chargeable under Part 2 ITTOIA 2005, that is 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)
- patent income, where the individual alone or jointly devised the invention for which the patent in question is granted, in certain specific categories
- general earnings from an overseas Crown employment which are subject to tax in accordance with section 28 of ITEPA 2003
- rental income is generally not relevant earnings but some rental income may be included if it is in respect of UK or EEA* furnished holiday lettings business
For full information see PTM044100.
*Please note at time of publication the legislation surrounding this may change in relation to the exit from the EU, due to a high volume of changes being made to legislation the government have not been able to research and record them all.
If the client receives a redundancy payment the first £30,000 is normally tax free and as such doesn’t qualify as relevant earnings. For example, if the client receives a redundancy payment of £120,000 the amount of relevant earnings is normally £90,000.
For self-employed individuals, historically their relevant earnings were profits calculated over their chosen period of account. These did not need to align with the tax year i.e. 6th April to 5th April. We’ll cover the changes in detail later.
Where relevant UK earnings are not taxable in the UK due to double taxation agreements they are not relevant earnings.