SIPP, or a Self Investment-Pension Plan is a government approved pension investment scheme which gives individuals the option to make their own investment choices. The scheme allows individuals to have up to 45% of tax relief on contributions, with no income tax or capital gains tax to pay upon receiving the pension after retirement age. The idea is to give people more freedom than traditional company pension schemes offer, as such pension plans tend to have limited investment opportunities, and they are usually run by the company’s own fund manager.
SIPP’s have the advantage of tax ‘wrappers’ which provide tax relief with the caveat of having limited accessibility to your pension investment. These ‘wrappers’ will ensure that investments that make up the pension will be held until an individual retires. Like many other government schemes, details surrounding SIPPs may be subject to change, and investors would be wise to seek expert advice from individuals such as ourselves who know the ins and outs of the various different type of pension schemes that are available on the market.
One of the advantages of a SIPP is that the HMRC will allow individuals to invest in any type of asset, however holders of such plans should be aware that certain assets will be subject to tax charges. The following assets are exempt from such tax charges:
- Stocks and shares which are listed on any recognised exchange
- Options which are traded on any recognised futures exchange
- UCITS, OEICs and authorised UK units and funds
- Any unauthorised unit trust which doesn’t invest in the residential property market
- Shares from unlisted exchanges (subject to change by the HMRC)
- IPAs and EU insurers which are unlisted
- Any commercial properties (including hotel rooms)
- Traded endowment policies
- Derivatives products
- Gold Bullion
Some investments can incur heavy tax penalties, and are therefore excluded by many SIPP providers. Examples of such investments include the following:
- Exotic assets such as vintage wine, art collections and classic cars
- Companies dealing with residential properties
What happens after retirement?
From the age of 55 you’ll be allowed to start making withdrawals from your pension (this will be increased to 57 from 2028). Withdrawals will be subject to income tax, however they will be 25% tax free. Remember however, that your pension will need to last throughout your retirement, and a larger withdrawal could lead to a significant drop in your monthly income which you will need to maintain your standard of living.
If you’re looking at pension options and you’re considering taking out a SIPP in Lancaster, it’s important to get the right advice. Don’t hesitate to contact our experts on 01524 849955 to speak to a member of our team. You can also send a message to the form on the ‘Contact Us’ page, and we’ll endeavour to get back in touch with you as soon as we can.
The flexibility of a SIPP allows you to spread the risk, especially if some investments perform badly. However, these do tend to have higher costs than a standard pension and active management is essential to maximise the benefits of the wider investment choice on offer. For these reasons, they will not be suitable for everybody and generally only those who are fairly experienced at actively managing their investment should consider this type of investment.
The investment growth within the fund is currently free from all UK personal income and Capital Gains Taxes. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
The value of a SIPP can fall as well as rise. You may get back less than the amount invested.