Grow_TaxAgility Accountants LondonSo, what is a SIPP? A Self Invested Personal Pension (SIPP) is a type of pension plan that you can set up alongside any existing pension plans you already have in place, with a view towards building a significant retirement pot over a long period.

Designed to make saving for retirement that little bit easier; you may invest 100% of your net earnings up to £50,000 into a SIPP in the current tax year (2013/14), with the government offering tax relief on every contribution (see below). As is true among all investments of this nature, the more you put into a SIPP, and the longer you keep it in there; the more compound interest you will build up over time.

It’s no secret that you’re going to need a pension pot for your retirement. Though you may be holding out for help from your children, the government, or your employer, a SIPP can work as a stand-alone pension arrangement to give you greater certainty about what you’re entitled to once you reach that ever-elusive (and ever-increasing) retirement age.

Tax Purposes of a SIPP

There are numerous tax benefits to taking out a SIPP.  A summary of the main benefits follows below.

You’ll Get Tax Relief on SIPP Contributions

For every penny you place into a SIPP you’ll receive an added 20% (currently) from the taxman in the form of tax relief; so if you place £500 into your SIPP every calendar month, you can expect the government to increase your monthly contribution to £600 as they add 20% (or £100) on top.

You’ll Avoid Capital Gains Tax (CGT) and Income Tax

Similar to a number of other pensions plans, as well as Individual Savings Accounts (ISAs), your contributions into a SIPP will grow entirely free of capital gains tax and income tax.

You’ll Receive a Tax-Free Lump Sum on Retirement

One of the most attractive tax benefits of contributing to a SIPP alongside any other existing pension plans you already have in place is the tax-free lump sum you’ll be entitled to on retirement.

It should be noted that the minimum age in which you can access your SIPP funds, and therefore your tax-free lump sum, is currently fifty-five, though this will likely rise in line with the increasing retirement age. If you retire at or past age fifty-five you’ll have access to up to 25% of your SIPP pot entirely tax-free, with many opting to use this advantage to pay off their mortgage, though these funds are yours to spend entirely as you please.

The remainder of your SIPP must be converted into an annuity by a life insurance company on your retirement, with you receiving an annual income stream in return.

Your Spouse Won’t Pay Inheritance Tax if You Die Before Retiring

The least exciting of the tax benefits, yet certainly one to think about. If you die before the age of 75 and before taking anything from your SIPP, your entire retirement pot will, in most cases, be transferred to your spouse free of inheritance tax.

Professional Advice on SIPPs

To speak with a professional to discuss whether a SIPP is right for you, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.