Relevant Earnings and Net Relevant Earnings
The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.
To make contributions in excess of the "earnings threshold" to a personal pension/stakeholder plan an individual must have "net relevant earnings". This factsheet provides details of broadly what constitutes both relevant and net relevant earnings.
What are relevant earnings?
Relevant earnings (REs) are earnings chargeable to UK tax. This includes earnings that are not pensionable under an occupational pension scheme (unless the scheme is death in service only) or earnings from self-employment.
Appendix 2 of the IR76 Personal Pension/Stakeholder guidance notes outlines what counts as REs. Full details are as follows;
- profits chargeable under Schedule D immediately derived from a trade, profession or vocation
- salary, wages, bonus, overtime and commission
- benefits in kind which are chargeable to tax under Schedule E (applies to employees earning over £8,500, and to directors)
- profit related pay (including the part which is not taxable)
- Statutory Maternity Pay and Statutory Sick Pay, provided it is paid by the employer and chargeable under Schedule E
- Permanent Health Insurance payments paid by the employer whilst the individual is still in employment
- furnished holiday lettings chargeable under Schedule D Case VI for the years 1982/83 to 1994/95 and furnished holiday lettings chargeable under Schedule A for the years 1995/96 onwards
- salary paid by way of Government Securities
- Enterprise Allowance payments chargeable under section 127 of ICTA 1988
- post-cessation receipts which qualify as earned income under section 107 of ICTA 1988
- remuneration paid in the form of units in an authorised unit trust provided it is treated, on receipt, as a taxable emolument of the individual
- income from woodlands provided it is treated for tax purposes as immediately derived from the carrying on of a trade
- patent rights treated as earned income under section 529 of ICTA 1988
- sub-postmaster's retirement gratuities
- payments made to local councillors which are chargeable under Schedule E
- amounts deducted from salary to purchase partnership shares in a Share Incentive plan provided they qualify as such under paragraph 83 of Schedule 8 of Finance Act 2000
- employer contributions to a funded unapproved retirement benefit scheme (FURBS) which are assessable on the employee, provided the FURBS is the only scheme of the employer of which the employee is a member.
Appendix 3 of the IR76 Personal Pension/Stakeholder guidance notes outlines what does not count as relevant earnings. Full details are given below;
- income from an employment which is pensioned under an occupational pension scheme (section 645 of ICTA 1988)
- redundancy and termination payments chargeable to tax under section 148 of ICTA 1988 (golden handshakes)
- income arising from the acquisition or disposal of shares or an interest in shares or from a right to acquire shares
- emoluments received by an individual as a controlling director of an investment company
- earnings falling within section 644(6A) of ICTA 1988
- pensions (a pension is not remuneration from an office or employment)
- all benefits paid by the state, including Invalid Care Allowance, Working Family Tax Credit and Disabled Persons Tax Credit
- grants paid by local authorities to foster parents
- Statutory Sick Pay and Statutory Maternity Pay paid by the DWP
- except for directors, benefits in kind where earnings from the employment are less than £8,500 (such benefits are not taxable)
- Permanent Health Insurance (PHI) paid directly to the individual by the insurance company after the employment has ceased
- partnership retirement annuities
- client's account interest assessed under Schedule D Case III
- earnings from international organisations which are exempt from UK tax by reason of a statutory instrument, including the United Nations, World Health Organisation, International Sugar Organisation, International Coffee Organisation, International Cocoa Organisation, and the International Maritime Satellite Organisation. In addition, "foreign emoluments" chargeable under section 192 of ICTA 1988 where the individual is a member of a "corresponding" overseas pension scheme
- employer contributions to a funded unapproved retirement benefit scheme (FURBS) where the employee is also a member of an approved occupational pension scheme.
What are net relevant earnings?
For the employed net relevant earnings (NREs) are equivalent to REs.
For the self-employed NREs are REs reduced by business expenses, including any deductions which are in respect of losses/and or capital allowances.
The details shown are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
Updated 29 January 2004
Published 27 September 2002
For professional advisers only