HM Revenue & Customs has provided crucial new guidance on pension contributions, directly addressing a taxpayer's query about moving funds after redundancy. The clarification centres on how transfers from workplace share schemes impact your annual pension allowance.
The Redundancy Question: Shares, SIPPs and Allowances
A taxpayer who lost their job approached HMRC with a specific dilemma. They wanted to know if moving £30,000 worth of shares from an employee Share Incentive Plan (SIP) into their Self-Invested Personal Pension (SIPP) would count towards their annual earnings limit for pension contributions.
HMRC's initial response was definitive. A spokesperson stated that "any input into a pension would count towards your annual limit." The current annual allowance for pension savings is £60,000 for the 2024/25 tax year, a level set in the 2023/24 period after an increase from £40,000.
HMRC's Detailed Clarification on Limits
Seeking further detail, the individual asked which limit specifically applied: the universal £60,000 annual allowance or their personal taxable earnings for the year. They referenced guidance from Pension Wise suggesting it related only to the £60,000 cap.
HMRC confirmed the transfer would be deducted from the £60,000 annual allowance. They added a critical second point: the contribution also counts "towards the 100 percent of relevant UK earnings limit for tax relief purposes."
This means if someone earned £30,000 in the 2025 tax year and contributed that same amount from earnings to their pension, transferring an additional £30,000 from shares would still be possible within the £60,000 total limit. However, they would not receive tax relief on the share portion, as tax relief is only granted on contributions up to 100% of relevant earnings.
Tax Advantages of Share Incentive Plans (SIPs)
In its response, HMRC also highlighted the inherent tax benefits of SIPs, which form the backdrop to this query. According to official guidance, shares held within a SIP for five years are free from income tax and National Insurance on their value.
Furthermore, you can potentially avoid Capital Gains Tax (CGT) when you dispose of the shares if certain conditions are met:
- You sell the shares after keeping them in the plan until sale.
- You transfer them into an Individual Savings Account (ISA) within 90 days of removal from the SIP.
- You transfer them directly into a pension scheme when the plan ends.
This latest clarification from the tax authority underscores the importance of understanding the interplay between different savings vehicles and annual limits, especially during significant life events like redundancy. Savers are advised to consult a financial adviser for personalised planning around these complex rules.
