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SIPP, NHS and tax

Dear all,
I am currently earning around 58k from my full time job and have been paying into the 2015 NHS pension. 
I have a BTL which adds arounds 6k to the above after expenses.

I'm looking at investing into a SIPP to try and reduce my tax burden even if its just a bit while also looking at my pension planning. I can probably afford around 300p/m (so around 3.6k p/a) to put into a SIPP after maxing out my S&S ISA (Vanguard LS80). 

I'm just wondering what do I need to consider around pensions allowances etc to avoid any counterintuitive taxes/fines or whether I need to even worry investing a relatively small amount.

Many thanks for your advice
D

Comments

  • molerat
    molerat Posts: 33,492 Forumite
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    edited 26 November 2023 at 1:17PM
    I assume your NHS salary is £58K before the NHS pension deductions ?
    Paying into a SIPP will reduce your higher rate tax liability.  All you need to do is put the gross contribution, which would be £4500 (£3600 + the £900 basic tax credit), into your SA and the tax due will be reduced accordingly
  • As far as HMRC are concerned you are probably only earning ~£51-52k from the NHS but even so you are £7-8k above the higher rate threshold so adding money to a S&S ISA whilst still paying higher rate tax is maybe not the ideal choice unless tying more money up in the pension is a problem?

    NB.  I'm assuming the £6k referred to in relation to the BTL is the profit in HMRC's eyes i.e. excluding finance costs, not the real profit.
  • QrizB
    QrizB Posts: 15,190 Forumite
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    DPR87 said:
     can probably afford around 300p/m (so around 3.6k p/a) to put into a SIPP after maxing out my S&S ISA (Vanguard LS80).
    To underline a previous comment, if you don't need the money until you reach minimum retirement age (55/57/58) it could make more sense to put your VLS80 investment inside a SIPP rather than an ISA. All other things being equal, you'll be 6.25% better off.

    N. Hampshire, he/him. Octopus Intelligent Go elec & Tracker gas / Shell (now TT) BB / Lebara mobi. Ripple Kirk Hill member.
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  • DPR87
    DPR87 Posts: 68 Forumite
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    @molerat - Thank you - yes 58k before pension deductions
    @Dazed_and_C0nfused - Thanks - yep, the £6k is "profit"
    @QrizB - Thanks - that's a big difference and I think I'll look into this option

    So all things considered, do I need to worry about paying both NHS pensions and into a SIPP based on the above numbers from a tax/penalty perspective?

    Thanks all 
  • QrizB
    QrizB Posts: 15,190 Forumite
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    DPR87 said:
    So all things considered, do I need to worry about paying both NHS pensions and into a SIPP based on the above numbers from a tax/penalty perspective?
    I dont think there's much worry involved.
    Your NHS pension takes care of itself. It's a good scheme (most of us private sector folk would love access to something so generous) and your payroll should make sure you make the payments and get the tax benefits.
    Your SIPP will give 20% tax relief at source (RAS), so evey £100 you pay in will automatically have £25 added. You'll declare these £125 payments on your Self Assessment return and HMRC will then adjust your tax code accordingly.
    If you're currently paying HICBC then SIPP payments will reduce your adjusted income and your HICBC payments will fall, or potentially be eliminated.
    The Annual Allowance has been raised to £60k so it seems unlikely that your SIPP payments will get you anywhere near that, even allowing for the PIA from your NHS pension. (Someone who knows more about NHS pension PIA will need to confirm this?)
    N. Hampshire, he/him. Octopus Intelligent Go elec & Tracker gas / Shell (now TT) BB / Lebara mobi. Ripple Kirk Hill member.
    2.72kWp PV facing SSW installed Jan 2012. 11 x 247w panels, 3.6kw inverter. 33MWh generated, long-term average 2.6 Os.
    Not exactly back from my break, but dipping in and out of the forum.
    Ofgem cap table, Ofgem cap explainer. Economy 7 cap explainer. Gas vs E7 vs peak elec heating costs, Best kettle!
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