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HMRC internal manual

Double Taxation Relief Manual

Double Taxation Relief Manual: Guidance by country: South Africa: Pension contributions

The general premise of the pension contributions provision is that if a member of a pension scheme established in one country goes to work (as an employee or in a self-employed capacity) in the other country, the state of residence will not tax the scheme member on income earned by the scheme unless it is paid to him (or for his benefit). Nor will tax be payable if income is transferred to another pension scheme until the benefits are actually received.

Under the Agreement, contributions to the scheme by that member (or those paid on his behalf) will be tax-deductible in the state of residence. In the same way, benefits accrued under the scheme, or employer contributions to the scheme, will not be treated as part of his taxable income and those contributions will be tax-deductible for the employer. The reliefs available cannot exceed those allowed by the state of residence for contributions of the same amount to a scheme established in the state of residence.

The conditions for getting the relief are as follows

  • The individual was Non Resident and was contributing to the foreign pension scheme (or to a similar scheme for which it was substituted) immediately before that individual began to exercise an employment in the other country, and
  • The competent authority of the other State agrees that the pension scheme generally corresponds to a pension scheme established in that other State.

Where someone comes to work in the United Kingdom we will regard the first condition as having been met if the individual was a member of the South African scheme before beginning to exercise an employment or self-employment in the United Kingdom.

Relief will be restricted where contributions to a pension scheme are deductible or excludable in computing a person’s taxable income in the host country if he is subject to tax there not on his total income but only on amounts remitted to that country. Relief is available only on a corresponding proportion of the pension contributions.

An example

Individual’s total income, profits and gains £100,000
Income, profits and gains remitted to the UK £ 90,000
Individual’s contributions to South African pension scheme £ 5,000

Contributions deductible in computing individual’s UK taxable income - £4,500 (i.e. 90% of individual’s total contributions).