SIPS Tax Benefit

SIPPs have the same tax benefits as other personal pensions, including basic‐rate tax relief added by the government for personal contributions. This boosts your initial contributions. It works like this: For every 80p you pay into your personal pension, the government adds 20p, boosting it to a gross contribution of £1. This basic‐rate tax relief is claimed by your SIPP provider, and will be added to your pension automatically.

Almost every UK resident under 75 qualifies for this tax relief, even children and other non‐taxpayers.

Higher‐rate taxpayers enjoy even greater tax relief, as they can claim back up to a further 20p of every £1 gross contribution through their tax return or local tax office.

This means, for example, that a £10,000 contribution would ultimately cost you £8,000 if you are a basic rate taxpayer, and from as little as £6,000 if you are a higher- rate tax payer. Those paying tax at the top rate of 50% can claim up to an extra 30p back per pound reducing the cost of a £10,000 contribution to as little as £5,000.

In addition to the up‐front tax relief, the investments within your SIPP grow free of UK capital gains and income taxes, although taxes already deducted from dividends cannot be reclaimed.

Employer contributions are paid gross, however if an employer pension contribution ranks as a valid business expense, it can be offset against the taxable profits of the business. Any contribution an employer pays on your behalf should not count as a taxable benefit so should not be liable to tax or National Insurance.

You can normally take up to 25% of your fund as a tax‐free lump sum when you retire. The rest must be made available to provide a taxable income. If you die before taking retirement benefits, the fund can be made available to provide a taxable income for your dependants or can normally be paid as a lump sum, free of tax, to your nominated beneficiary.

Information in this guide is based on our understanding of current pensions and tax rules and regulations and these are subject to change. The exact relief you are entitled to will depend on your circumstances.

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