A taxpayer had a question about paying into their pension
HMRC has issued fresh guidance on its pensions rules following a taxpayer’s enquiry about their SIPP (Self-invested personal pension). The person approached the tax authority with a particular concern regarding the transfer of shares from an employee share incentive plan (SIP) into a self-invested pension plan (SIPP), after they had lost their job through redundancy. They asked the authority: “Does the transfer of £30,000 shares from a SIP to a SIPP following redundancy count towards my annual earnings limit?”
HMRC’s initial response was clear-cut: “Any input into a pension would count towards your annual limit.” The current ceiling for pension contributions stands at £60,000 for this tax year.
This annual allowance has remained at this level since the 2023/2024 tax year, after it was increased from the previous £40,000 threshold. The taxpayer pressed for further clarification: “Thanks however which limit? The £60,000 we are all allowed in any year or our allowable earnings for the year.”
They also said they had seen guidance from Pension Wise indicating “it only relates to the £60,000 limit, not your taxable earnings for the year”. HMRC confirmed that the contribution would indeed be deducted from their £60,000 annual allowance.
The person then posed another question, asking whether earning £30,000 in 2025 while contributing £30,000 to their pension would still allow them to transfer the additional £30,000 from their shares, all within the £60,000 limit. HMRC responded: “It counts towards your annual allowance (currently £60,000 for most people) and also counts towards the 100 percent of relevant UK earnings limit for tax relief purposes.”
The tax authority also provided a link to further information about Share Incentive Plans (SIP).
Tax benefits of Share Incentive Plans (SIP)
According to the guidance, if you acquire shares through a SIP and retain them in the plan for five years, you won’t be liable for income tax or National Insurance on their value. You might also be able to avoid capital gains tax when you sell the shares.
You will not be subject to capital gains tax if:
- You sell the shares, provided they were retained in the plan until the point of sale
- The shares are transferred to an ISA within 90 days of removing them from the plan
- The shares are transferred to a pension, directly from when the scheme ends.