Query re pension income, salary, SIPP and HMRC

Purplelady65

In March 2025 I accessed my 1995 NHS pension of £28k per annum. My salary is £65k. My total income is therefore £93k gross. I am still working and paying into the 2015 NHS pension scheme at a cost of £8,200 per annum. I had planned to make the pension income my first income and have the personal allowance moved to the pension. I’m aware that I can’t pay pension income into a pension so was planning on paying the amount of salary I would be paying 40% tax on into a SIPP. So I’d estimated £93k - NHS pension contribution £8,200 would leave £84,800 - £50,270 =£34,530 that I would be paying 40% tax on. I was therefore planning to pay this into a SIPP. When I rang HMRC to move the personal allowance to my pension and to let them know how much I would be paying into a SIPP over this financial year I was told that pension tax relief can only be applied to one source of income and that has to be the same source of income that has the personal allowance. I queried this but the person I spoke to was quite adamant. So if I have the personal allowance on my pension income I can’t have any tax relief on the salary I pay into a SIPP and if I have the personal allowance on my salary then £65k - £8,200 = £56,800 this then leaves me with £6,530 for a SIPP and paying 40% tax on my pension of £28k. Is this correct what HMRC have told me? Thank you in advance for any replies. 

Dazed_and_C0nfused

Purplelady65 said:

In March 2025 I accessed my 1995 NHS pension of £28k per annum. My salary is £65k. My total income is therefore £93k gross. I am still working and paying into the 2015 NHS pension scheme at a cost of £8,200 per annum. I had planned to make the pension income my first income and have the personal allowance moved to the pension. I’m aware that I can’t pay pension income into a pension so was planning on paying the amount of salary I would be paying 40% tax on into a SIPP. So I’d estimated £93k - NHS pension contribution £8,200 would leave £84,800 - £50,270 =£34,530 that I would be paying 40% tax on. I was therefore planning to pay this into a SIPP. When I rang HMRC to move the personal allowance to my pension and to let them know how much I would be paying into a SIPP over this financial year I was told that pension tax relief can only be applied to one source of income and that has to be the same source of income that has the personal allowance. I queried this but the person I spoke to was quite adamant. So if I have the personal allowance on my pension income I can’t have any tax relief on the salary I pay into a SIPP and if I have the personal allowance on my salary then £65k - £8,200 = £56,800 this then leaves me with £6,530 for a SIPP and paying 40% tax on my pension of £28k. Is this correct what HMRC have told me? Thank you in advance for any replies. 

Not really no.

But is there really any great issue keeping the salary as your main/first source of income in HMRC's eyes whilst you contribute to work?  Assuming you want to receive the extra relief via your tax code and not as a lump sum once the tax year ends.

Also, you are overcomplicating things somewhat with references to your NHS salary.  That is of no relevance to HMRC, it is the amount you expect to see on your P60 that counts, the £56,800.

Also, do you mean you would pay £34,350 into a SIPP or would you really pay £27,480?

Are you confident the annual allowance won't be an issue?

Purplelady65

Hi @Dazed and Confused Thank you for your response. In reply to your queries:

I was planning to have my tax code changed so I received the tax relief via my tax code but from what HMRC have told me that would only be on £6530. 

I meant I would pay £34,350 in total including the tax relief (if I am able to). 

Re the annual allowance my NHS pension is 1/54 so £65k would mean a pension of £1204 for the financial year 25/26. £1204 x 16 would be £19,264 increase in value from 24/25. There may be a cost of living award of around 2.8% but nothing has been agreed. So I think I would be ok re the annual allowance. 

Dazed_and_C0nfused

Purplelady65 said:

Hi @Dazed and Confused Thank you for your response. In reply to your queries:

I was planning to have my tax code changed so I received the tax relief via my tax code but from what HMRC have told me that would only be on £6530. 

I meant I would pay £34,350 in total including the tax relief (if I am able to). 

Re the annual allowance my NHS pension is 1/54 so £65k would mean a pension of £1204 for the financial year 25/26. £1204 x 16 would be £19,264 increase in value from 24/25. There may be a cost of living award of around 2.8% but nothing has been agreed. So I think I would be ok re the annual allowance. 

I'm not convinced what HMRC have told you is strictly correct.  What you want to do might not make sense to them (or me) but I'm not convinced it's not possible.

There are other situations where you could pay no tax on your main/first source and have tax code allowances allocated to a second source.

But doing this part way though a tax year might make life more complicated?

If you are insistent on taking your preferred approach then you might find face a battle with HMRC.

Is there a particular reason you want to take this approach?

QrizB

Dazed_and_C0nfused said:

Is there a particular reason you want to take this approach?

That's my question too. In principle, it'll all come out in the wash no matter how your tax codes are allocated.

Marcon

It sounds as if the wires got well and truly crossed. 'Letting HMRC know how much I'd be paying into my SIPP', especially at this early stage of the tax year, would have been a sure fire recipe for confusion. Normally HMRC doesn't act on what you propose to do; it reacts to what you've actually done. It isn't generally a good idea to make a hefty lump sum pension contribution early in the tax year, for the simple reason it may turn out that you don't have sufficient earned income to support it (eg you might, for whatever reason, leave your employment shortly after you've made the contribution).

You are already in quite a complicated tax situation in respect of pensions: you are taking income from a pension scheme; you are contributing using the 'net pay' method (surely the most confusing terminology ever, since the contribution is actually taken from your gross pay!); and you are going to make personal contributions to a SIPP, using relief at source. Why complicate things further by trying to have your tax code allocated to the pension in payment, when it will make absolutely no difference to the final amount of tax you pay? What are you actually trying to achieve by doing that?

If the annual allowance does turn out to be an issue, do you have any scope to use carry forward in respect of the three previous tax years to the current tax year?

mamacita63

I'm not an expert at all, but I also have a salary of around £60K from NHS full time work and have taken my small 1995 pension. For some reason, HMRC allocated the pension as my main income even though it is way smaller than my salary. This resulted in a huge increase in tax I had to pay as my actual job was taxed all at 40%. Luckily I called them and the error was discovered and resulted in paying a lot less tax.  Something to consider.
The other thing is that you mention you can't pay pension payments into a SIPP, but I pay into a SIPP as my overall income is now increased so I can't see how this is an issue as long as I state that the payments are made from my salary. Surely this is just normal retirement planning.

crv1963

As others such as Dazed and Macron have said I also think wires are crossed.

I get my 1995 Pension, I also work fulltime contributing to the 2015 scheme and save into a SIPP. I also have bought additional 2015 pension on a monthly basis- there is a calculator on the NHS Pension site, I worked out how much 40% tax I would pay and used the calculator to come to a sum of additional pension that was enough to cover almost all of this. Since I started I observe that I still pay/ paid some 40% tax, hence some contribution to my SIPP.

Out of interest for you I always end the tax year being under taxed and so have a reduced personal allowance- as do most of my retire and return colleagues. HMRC act on what you do not what you say you plan to to so it may be better to do what you plan, and the pension provider- NHS and SIPP will let HMRC know what you pay in so eventually HMRC sort the tax owed/ refund out.

All of my tax allowance is on my salary and all my pension is taxed. 

MarlowMallard

Don't quite see the problem here. If your salary after NHS pension is £56k and you pay £32k into a SIPP, then your taxable income from work is down to £24k, then add £27k pension is £51k taxable - so £26k of the pension is taxed at basic rate and £1k at 40%.   Comes out the same in the end. 

Dazed_and_C0nfused

MarlowMallard said:

Don't quite see the problem here. If your salary after NHS pension is £56k and you pay £32k into a SIPP, then your taxable income from work is down to £24k, then add £27k pension is £51k taxable - so £26k of the pension is taxed at basic rate and £1k at 40%.   Comes out the same in the end. 

Personal contributions to a SIPP will not alter the op's taxable income.

They will benefit from basic rate tax relief, for example £1,000 paid by the op becomes £1,250 in the pension.  

And their basic rate band is increased by the amount of the gross contribution (£1,250 in the example above).

But they would still have the exact same taxable income.

Marcon

mamacita63 said:

I'm not an expert at all, but I also have a salary of around £60K from NHS full time work and have taken my small 1995 pension. For some reason, HMRC allocated the pension as my main income even though it is way smaller than my salary. This resulted in a huge increase in tax I had to pay as my actual job was taxed all at 40%. Luckily I called them and the error was discovered and resulted in paying a lot less tax.  Something to consider.

Not really. You've still got the same overall level of taxable income (salary + pension) and the same overall tax code, so your tax for the year in question is the same however your tax code is allocated.

mamacita63 said:

The other thing is that you mention you can't pay pension payments into a SIPP, but I pay into a SIPP as my overall income is now increased so I can't see how this is an issue as long as I state that the payments are made from my salary. Surely this is just normal retirement planning.

You don't have to 'state' anything. You just need to have sufficient earned income in the year to cover the gross payment to your SIPP.