What is a SIPP?

A SIPP is a Self Invested Personal Pension Scheme where the investment power of the pension is given to the investor. Investments can be made in Cash Deposits, Stocks and Share, Futures and Options, Unit Trusts and OEICs, Managed Funds, Investment Trusts and Commercial Property.

Investors are allowed to invest up to a maximum of 100% of their earnings although there is a cap £216,000 for the current tax year Any payment into a SIPP will receive basic rate tax relief of 22% and an additional 18% can be claimed back through the year end tax return for higher rate tax payers. The SIPP will act like a regular Pension Scheme where the individual can take a tax free cash lump sum of up to 25% and then use the remaining fund to generate further income. If the fund exceeds £1.6 million at retirement then the excess is taxed at 55%.

One advantage of a SIPP is the Income Drawdown facility, this allows the individual to take a maximum tax free cash lump sum (currently 25% of the total fund value) and use the remaining to provide an income up to age 75 without the need to purchase an annuity.

When purchasing commercial property. You can borrow up to 50% of a property's value against the value of your SIPP. All income earned from the property is paid to the SIPP tax free. This is particularly advantageous if you purchase commercial property that a company of yours subsequently rents out. Any rent which would otherwise be taxed can be passed into the SIPP tax free and the business pays the rent as a tax deductible expense.

SIPP fees are generally higher than those for
Personal Pension Schemes.