A self-invested personal pension (SIPP) gives you the opportunity to invest in a wide range of assets.

It’s authorised in the same way as a standard personal pension and provides the same tax benefits, including 25% tax-free cash withdrawal. The most suitable course of action is dependent upon individual circumstances and professional advice should be sought. Taxation is subject to change.

A SIPP allows you to invest in any qualifying pension asset (shares, stocks & shares, investment trusts, bonds, and property), and grants you independence from insurance companies with professionals managing the pension for a fixed fee.

Features of a SIPP

  • Separates the administration of the pension scheme from the investments
  • Up to 45% tax relief, depending on your tax rate (the income tax band you fall within), on personal contributions, while allowing contributions from your employer and other third parties
  • No income tax or capital gains tax on assets within the account as they grow
  • From age 55, 25% of the fund is available to you as a tax-free lump sum
  • Allows the purchase of land or commercial property from the scheme assets
  • Ability to access retirement benefits through a flexi-access drawdown, instead of purchasing an annuity. Ability to draw your pension benefits in phases (phased drawdown)
  • Upon death, offers tax-efficient options for beneficiaries
  • As an investor, you must be comfortable making your own investment decisions

How does a SIPP work?

Just like all pensions, a SIPP offers up to 45% tax relief on contributions and is free from capital gains tax and income tax. The amount of tax relief you receive will depend on your individual circumstances and changes in government rules. When it comes to retirement, you can usually take up to 25% of your pension tax-free. Find out more information about pension tax relief by downloading our free guide here.

The flexibility of a SIPP means you have the power to invest in a wide range of assets, including funds, shares, bond, gilts, property and land, all held within a tax-efficient wrapper. Providers that allow any permitted investments, including commercial property, will often charge higher fees, while fees will be lower for providers who offer fewer investments.

However, investing in a SIPP comes with a lot of responsibility – you’re the investor and the investment manager, which can be problematic if you lack financial or investment know-how. That’s why at AFH, we always advise that you seek professional guidance before moving forward with a SIPP. Our experienced and qualified independent financial advisers will be able to best advise you on how you can proceed with a SIPP.

Is a SIPP right for me?

This depends on whether you are happy making your own investment choices, and how much control you wish to have over your pension pot. Some investors will already have adequate pension provision, either through their employer or other means, and are not willing to take on more risk to build their pot.

An independent financial adviser can not only help you to decide if a SIPP is right for you and find the best provider suited to your needs, but also manage your investment choices, so that you’re backed by expertise and experience.

How can I start a SIPP?

You can either start new contributions, or transfer funds from other pensions into a SIPP. You’ll need to check that you don’t incur expensive penalties, or that valuable benefits will not be lost if you transfer your funds.

SIPPs will vary in cost, so it’ll pay to think carefully about your options before you get started. If you unsure whether a SIPP will suit your personal circumstances, an independent financial adviser will be able to help.

What will happen to my SIPP if I die?

When passing your SIPP on, it will be taxed in the same way as any other personal or stakeholder pension.

If you die before the age of 75, your beneficiary can withdraw the money without being taxed. If you die at or over the age of 75, the money that your beneficiary withdraws will be taxed at their marginal rate of income tax.

You can choose to nominate a beneficiary when you set a SIPP up. This can be anyone, or more than one person if you wish. You can also choose to change a beneficiary at any time, this will usually be done by writing to the SIPP provider.

Once funds are held in a pension they are not usually accessible before age 55, rising to 57 from 2028.

To learn more about whether a SIPP is right for you, how you can set one up and what will happen to your SIPP if you die, speak to an independent financial adviser who will be able to create a plan based on your personal circumstances.

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