Query re pension income, salary, SIPP and HMRC

Dazed_and_C0nfused

Purplelady65 said:

Thank you for the comments and suggestions - much appreciated. I think I’ve got confused with how tax codes work and thought I would have to pay 40% tax on all my pension income. From what I’ve read and think I’ve understood from OPs comments I can claim the additional tax relief on the part of my salary I pay into a SIPP meaning I will then pay basic rate tax on my pension income. 

Re obtaining the tax relief I did ring HMRC at the start of 23/24 when I started paying into a SIPP and they did adjust my tax code then based on what I was proposing to pay in. However it was a much smaller sum than I’m proposing to pay in this year. I also paid in quite a lot more into the SIPP last year 24/25 due to taking on an acting up role but I haven’t done anything about that yet. I’m not sure what the usual course of action is? Should I write to them or ring them and ask for a refund or will they adjust my tax code to cover the tax relief on the additional payments? Sorry I don’t really know how this all works. 

Marcon - re your query about annual allowance and carry over the acting up role I took on last year resulted in a massive hike in 24/25 in my pension input amount (exceeding the £60k allowance) as I had 29 years service in the 1995 scheme. I tried numerous times to obtain a pension input amount statement from NHS Pensions for the previous 3 years. I kept being promised a statement from them but 6 months after my first request they said they wouldn’t provide one which was really annoying as I’d explained numerous times why I needed one. I did my own calculations (which may not be 100% correct but are in the ball park) and think I’m ok as in the previous years I had only been awarded cost of living awards so the PIA hadn’t increased by that much in the 1995 scheme but had grown in the 2015 scheme by around £20k per annum so I did have carry over for those years.

And yes, you’re correct re things may change during this year re working. With all the forthcoming workforce reductions coming in the NHS  (I am a manager in a corporate function) I may decide to go if I end up doing the jobs of 3 people or on the other hand further reduce my hours. Plus my NHS pension was incorrectly calculated so should increase by £900 and the cost of living award will be October at the earliest but back paid to April so my earnings aren’t set in stone either. The pension calculation error was confirmed to NHS Pensions by my employer’s pension team in February but all NHS Pensions can say is “we have no timescale on when the pension will be recalculated” so I could be waiting years. 

So I think from the comments the best thing to do is wait until the end of the financial year 25/26 and then claim the additional tax relief based on what I’ve paid in? It does all seem to be getting complicated. I’m wondering if I should ask a tax accountant to work it all out as I don’t want to go over the annual allowance but neither do I want to pay 40% tax on my income if I don’t need to. Thank you once again for the posts - very helpful. 

HMRC do not give tax relief relating to relief at source pension contributions in the tax code of a different tax year to the one the contributions were paid in.  Chaos would ensue!

You need to provide HMRC with the details of your relief at source contributions for 2024-25 and ask them to review that tax year.

Assuming you are due a refund you will get a calculation in due course detailing how it has been calculated.  Basically the relief at source contributions increase your basic rate band meaning more income can be taxed at 20% and less at 40%.

The calculation will cover all elements of your tax position for 2024-25, it isn't just about the pension contributions.

MarlowMallard

Admiral_Barbarossa said:

MarlowMallard said:

Admiral_Barbarossa said:

Incorrect. HMRC will see this as recycling and the limit is £3,600 per year for tax relief., that is a contribution of £2400 and the maximum of £1,200 in tax relief. My current employer had adjusted my payment into the pension to reflect my pension. 

Not necessarily.  If he's earning £53k from salary and paying £32k gross into the SIPP, then he's still taking home close to minimum wage from salary only, so it's not a slam-dunk that it will count as recycling.  Need to consult an expert. 

Correct. I missed that, you cannot earn less than than the minimum wage 

OP can put as much as they like into their SIPP, but as they’re still paying into their pension at work, tax relief is limited to £1,200 per year. I fear OP did nit pay for advice before seeing money burn a hole in their pocket. 

No, this is just wrong.  There is a £3600 limit for non-earners, i.e. if you have zero salary you can still put £2880 pa into a pension (using e.g. money from a spouse or elsewhere) and claim £720 "tax relief" on tax you didn't actually pay.   This obviously doesn't apply to the poster earning £56k. 

There is another limit of £10k pa called the "MPAA" which kicks in if you trigger an income (not lump sum) from a defined-contribution pension, but this also does not apply to the poster drawing a defined-benefit NHS pension which does not trigger MPAA. 
  
If neither of these apply, there is a limit of £60k pa or 100% of salary whichever is less, though it gets tapered for very-high earners over £200k.  Sal-sac companies do not let you sal-sac below minimum wage because it causes NI complications. 

af1963

Sal-sac companies do not let you sal-sac below minimum wage because it causes NI complications. 

I think it's not about NI complications, it's about obeying the minimum wage law.

It's a rule that prevents low earners from benefitting from any salary sacrifice schemes, not just for pensions but things like childcare or cycle to work.  Even if they are happy to accept the lower nominal salary, and even though it would make them better off overall, they're not allowed to do it.

Marcon

Admiral_Barbarossa said:

MarlowMallard said:

Admiral_Barbarossa said:

Incorrect. HMRC will see this as recycling and the limit is £3,600 per year for tax relief., that is a contribution of £2400 and the maximum of £1,200 in tax relief. My current employer had adjusted my payment into the pension to reflect my pension. 

Not necessarily.  If he's earning £53k from salary and paying £32k gross into the SIPP, then he's still taking home close to minimum wage from salary only, so it's not a slam-dunk that it will count as recycling.  Need to consult an expert. 

Correct. I missed that, you cannot earn less than than the minimum wage 

OP can put as much as they like into their SIPP, but as they’re still paying into their pension at work, tax relief is limited to £1,200 per year. I fear OP did nit pay for advice before seeing money burn a hole in their pocket. 

...and I fear your post is just plain wrong. Plenty of people contribute to a SIPP because their workplace scheme won't let them contribute as much as they'd like to, or they simply want the flexibility of having 'another' pension. Tax relief isn't limited in the way you (incorrectly) believe; it relates to earnings, not some static number.

Minimum wage is a red herring, but for completeness, the restriction in relation to pensions only applies where contributions are made by salary sacrifice. Personal contributions can and do take people below minimum wage, otherwise nobody on minimum wage would ever be able to join an auto-enrolment scheme (they just can't benefit from using salary sacrifice).

Purplelady65

Admiral Barbarossa- I am not trying to recycle a pension into a pension. I am paying a proportion of my salary of £65k into a SIPP. I did this rather than make additional payments into the NHS scheme because I wanted the flexibility of a DC pot to bridge the gap between retirement and state pension age. 

Thank you everyone for your comments and suggestions. I’m a lot clearer now thank you re the tax codes and I’ll contact HMRC re the SIPP payments for last financial year. Much appreciated. 🙂