UK pension Expert

UK Pension Expert


SIPP or Self-Invested Personal Pension is a tax-efficient retirement savings scheme available in the UK. It is now in its fourth decade and has come in leaps and bounds in terms of plans and development.

From being limited to only a handful of investment choices, SIPPs can now be controlled all the way from an early age and to beyond retirement. Pension savers can choose from investment options across shares, trusts, exchange-traded funds, as well as commercial properties.

SIPPs are like any other pension plan but on an individual contract with a pension provider with significant tax benefits. In this case, retirement savers control what and how they choose to invest in.


How Does SIPP Work?

SIPP is one of the most tax-efficient retirement savings accounts that is available in the United Kingdom. In contrast to personal pensions, or group pensions, where the provider chooses from a list of investment options, SIPP allows individuals to allocate their assets in a wide range of investment options approved by the HMRC (Her Majesty's Revenue and Customs).

SIPPs can be of two types: simple or full. The distinction between the two is meek; the simple plan has lower costs and has more straightforward strategies, whereas the full type allows broader investment options and has a higher cost.

Full SIPP: It has an annual fee of 1% or higher on the £50,000 pension fund, along with trading charges. Suitable for people with significant pension funds.

Lite or Simple SIPP: It has an admin charge and platform fee. It is suitable for low to mid-range pension sums.

SIPP Eligibility and HMRC Rules

The rules for SIPP have been changed several times over the past years. There have been changes in the pay-in amounts, investment restrictions, age, and withdrawal concerns. But there is no limitation to the number of SIPPs an individual can have in the country UK.


There are multiple eligibility criteria to be able to invest in SIPP, including:

  • Must be a UK resident to contribute to a new SIPP. However, if you are a non-UK resident, you can transfer any existing UK pension to SIPP.
  • Must be under the age of 75 to contribute to SIPP.
  • You cannot access funds until the age of 55.

HMRC Rules

As HMRC is the non-ministerial department of the UK government responsible for the collection and administration of taxes, it has set a specific set of pension rules for SIPP:

  • The annual tax-free allowance is capped at £40,000 or 100% earnings, whichever is lower.
  • Once the taxable drawdown has been triggered, the allowance is reduced to £4,000.
  • Lifetime allowance of 1.055 million from 19/20 tax year.

What Can SIPPs Invest In?

Investing in SIPP helps consolidate your funds and diversify your investment options. Pensioners can invest in a range of assets, including:


  • Trustee Investment Plans
  • Fixed Interest Stocks and Gilts
  • Stocks and Shares
  • Regulated Collective Investments such as Unit Trusts, OEICS, and ICVCs
  • Commercial Property
  • Exchange-Traded Funds (European Markets/London Stock Exchange)
  • Offshore Pensions/Funds
  • UK Government Bonds
  • Non-Sterling Bank Deposit Accounts
  • Real Estate Investment Trusts Listed on Any Stock Exchange



What Is Pension Income Drawdown In SIPP?

The Money Purchase Annual Allowance permits contribution allowance up to £4,000 if an individual has started pension income drawdown on the SIPP. This applies only once the income payment has been triggered and not for withdrawal of lump-sum pension amounts.


Transfer of Pension To SIPP

When planning for retirement, there can be several reasons to switch to SIPP. Most pensions can be moved to SIPP, but it's essential to ensure that the specific SIPP accepts such pension transfers, be it defined benefits or company pensions.

As SIPPs are a more flexible investment option, they allow pensioners to hold commercial property as an investment directly. You can also hold any residential property in SIPP, but it can only be through an investment fund or REIT.


SIPP Fee Management

Regardless of whether an individual manages his own SIPP account or hires an investment manager, pensioners need to understand the fee management of SIPPs before investing.

Points like how much the provider tax charge for a SIPP (fixed annual fee, trading commissions, account opening charges) are essential so that individuals do not suffer on their long-term investment returns. Higher costs or fees can impact both the capital and potential income of a SIPP.


Why Should You Consider SIPP?

It is essential to know that SIPP may not be suitable for all. In case you are not willing to invest across different classes, SIPP may not be the right choice. The investment value is always subject to risks, as is the change in British Tax Rules and Regulations. Any specific yield or previous performance cannot be deemed reliable for future returns. It is essential to know the risk factors associated with any investment plan. You can always get in touch with UKPensionExpert for professional advice and guidance to make an informed decision.

What Are the Tax Benefits Of SIPP?

Like any other pension or investment plan, SIPPs are also free of Capital Gains Tax and Income Tax, but tax relief is limited to the annual pension allowance and annual earnings.

As SIPPs are designed to encourage saving for the future, the government pays at least 20% of the total invested amount. The amount of tax relief you get also depends on the tax band, basic, higher, or additional rates. It is standard to claim 20% of the sum for all investments, but additional or higher rates can let you claim up to 20 or 25% extra through self-assessment tax returns.

For example, if your initial contribution is £1200 in your SIPP, the government adds 20%, that is £250, and you pay £1000. For the additional and higher rates, the amount you can claim in your tax returns is up to 20% for higher rates (£250) and up to 25% for additional rates (£312.5).

So, your total cost of SIPP contribution is different for the three types of rates: basic, higher (earning more than £50000 annually), and additional (earning over £1,50,000 annually). Basic Rate Taxpayer (20%): £1000 (1250-250) Higher Rate Taxpayer (20% + 20%): £750 (1250-250-250) Additional Rate Taxpayer (20%+25%): £687.5 (1250-250-312.5)

What Is SIPP Annual Allowance Carry Forward Rule?

In case you have not used your full allowance for the previous three fiscal years, you will be able to carry forward your SIPP annual allowance. This is the carry-forward rule. But, the carry forward rule has further eligibility criteria, including:

  • You should be a pension scheme member for all three years from which the carry forward will be processed.
  • You should have exhausted your current year’s annual allowance.
  • You should have contributed less than or equal to £40,000 in any of the last three years.

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