Many South Africans who migrate to the UK continue paying into their South African Retirement Annuity (RA) funds using funds they retain or earn in South Africa. While it's possible to claim these contributions against your UK income tax, it's crucial to understand the long-term implications of this decision.
The key consideration is this: once you claim these RA contributions on your UK tax return, your South African RA becomes subject to UK pension rules. This has significant consequences:
1. In the UK, when someone withdraws a lump sum from a pension where tax relief was previously claimed, it triggers what's known as the Money Purchase Annual Allowance (MPAA).
2. The MPAA significantly reduces the amount you can contribute to UK pensions with tax relief - from £60,000 down to £10,000 per year (2024/25 tax year).
Here's where this becomes particularly relevant for South African expatriates:
· After being tax-emigrated from South Africa for three years or more, you can withdraw 100% of your South African RA
· However, if you've previously claimed UK tax relief on your RA contributions, this withdrawal will trigger the MPAA
· This means all your future UK pension contributions will be limited to £10,000 per year for tax purposes, rather than the standard £60,000
While claiming tax relief on your South African RA contributions might seem attractive for immediate tax savings, you need to carefully consider whether these short-term benefits outweigh the potential long-term restrictions on your UK pension planning.
Is it worth it? The answer depends on your long-term plans. The main points you should consider are:
Do you plan to work in the UK long-term?
Might you need to make larger pension contributions in the future?
Are you likely to withdraw your South African RA?
Before claiming the tax relief, we recommend discussing your specific situation with a qualified advisor who understands both UK and South African pension tax rules.
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