What does section 635 of the Income Tax (Earnings and Pensions) Act 2003 do?

Section 635 sets out how to calculate taxable pension income when voluntary annual payments are made by or on behalf of a person outside the United Kingdom. The full amount of pension income arising in the tax year is the taxable amount, but it is treated as relevant foreign income, potentially engaging remittance basis rules and specific deductions under ITTOIA 2005.

How is foreign voluntary pension income treated as relevant foreign income under section 635?

The full pension income arising in the tax year is classified as relevant foreign income under ITTOIA 2005 Part 8, Chapters 2 and 3. This allows certain non-domiciled individuals to use the remittance basis, being taxed only on amounts brought into the United Kingdom, and to claim specific deductions and reliefs available for relevant foreign income.

What special rule applies to voluntary annual pension payments from the Republic of Ireland?

Where pension income arises in the Republic of Ireland, ITTOIA 2005 section 839 applies in a simplified form. Conditions B1 and B2 in that section are disregarded, along with any references to them. This effectively makes it easier for annual payments relief to apply to Irish-source voluntary pension income.

Can relief be claimed if foreign voluntary pension income cannot be transferred to the United Kingdom?

Yes, ITTOIA 2005 Part 8 Chapter 4 provides relief for unremittable income. These rules may apply where the recipient cannot transfer pension income to the United Kingdom due to legal restrictions or governmental actions in the country where the income arises, potentially reducing or deferring the United Kingdom tax liability.

Income Tax (Earnings and Pensions) Act 2003 section 635

Taxable pension income: foreign voluntary annual payments

Section 635 sets out how to calculate taxable pension income when voluntary annual payments are made by or on behalf of a person who is outside the United Kingdom.

The full amount of pension income arising in a tax year is the taxable amount, subject to the treatment of that income as relevant foreign income.
The pension income is treated as relevant foreign income, meaning the remittance basis rules and the deductions and reliefs rules under ITTOIA 2005 Part 8 Chapters 2 and 3 may apply.
Where the pension income originates from the Republic of Ireland, a modified version of the annual payments relief under ITTOIA 2005 section 839 applies, with conditions B1 and B2 disapplied.
Separate rules for unremittable income under ITTOIA 2005 Part 8 Chapter 4 may also be relevant.

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