What are the tax benefits of a SIPP?
Just like other pensions, investments in Self-invested Personal Pensions (SIPPs) grow free from income tax and capital gains tax. But your SIPP tax benefits don’t end there.
You also receive tax relief on your SIPP contributions. The Government tops up any contributions you make into your SIPP and other pensions by 20% up to the annual allowance of £60,000 or 100% of your earnings, whichever is lower. Higher and additional-rate taxpayers can claim back a further 20% and 25% respectively via the self-assessment process. SIPP pension tax relief is limited by your annual earnings and the pension annual allowance.
Keep in mind that taxation depends on individual circumstances and tax rules may change.
SIPPs are not suitable for everyone as they may be more expensive than other types of pensions. They may not be right for you if you don’t want to invest across different asset classes or don’t think you will make use of the investment choices available to you.
How does SIPP tax relief work?
Our SIPP tax relief example looks at three people who pay tax at different rates. Each contribute £10,000 into their SIPP but the net amount they pay in differs because the tax relief they receive on their SIPP contributions is adjusted for their tax-band. SIPP tax relief is no different to tax relief on other pensions and this varies according to whether you are a basic, higher or additional-rate taxpayer.
| SIPP Value | Basic-rate | Higher-rate | Additional-rate |
| How much each person pays into their SIPP | £8,000 | £8,000 | £8,000 |
| How much the Government adds | £2,000 | £2,000 | £2,000 |
| How much can be claimed back via a tax return | £0 | £2,000 | £2,500 |
| Total SIPP tax relief |
£2,000 (20%) |
£4,000 (40%) |
£4,500 (45%) |
| Total amount each person pays out for their £10,000 SIPP contribution | £8,000 | £6,000 | £5,500 |
What if you don't pay taxes?
If you are a non-taxpayer, including non-working spouses or children, or have a low income, you are still eligible for a 20% tax break. This is equivalent to the £2,880 personal pension contribution you make each tax year.
What are the limits on SIPP tax relief?
Whether you’re getting tax relief on a SIPP or other type of pension, it’s vital to remember that certain limits apply. The tax relief you receive is restricted both annually and over the course of your lifetime.
Learn more about your SIPP tax allowances.
Frequently asked questions
When is tax relief added to a SIPP?
When you pay into your SIPP your provider will claim and apply basic SIPP tax relief on your behalf. If you’re a higher-rate or additional-rate taxpayer, you’ll need to claim back the extra 20% or 25% via your self-assessment tax return.
Are dividends and gains paid into a SIPP tax-free?
Yes – the same is true for all pension contributions. It’s one of the useful benefits of a SIPP. Your money grows free from dividend tax, capital gains tax and income tax. Read more insights about dividends and capital gains tax by clicking on the links.
How much can you take out of a SIPP tax-free?
When you reach 55, you can usually take 25% of your pension fund tax-free. There is tax to pay on the remainder of your SIPP or other pension.
What can I do with my SIPP when I retire?
You have freedom over how you take the money from your SIPP when you retire. In fact, you don’t even have to wait until you retire. You can take money out when you reach 55. You can take lump sums, drawn an income, buy an annuity with your SIPP savings or even leave your SIPP invested.
Got questions about SIPP pension tax relief?
Speak to our pension experts for more information about SIPP* tax rules:
