Self Invested Personal Pension
Pension Money SIPP
Typically, pensions are the most tax-efficient strategy for retirement saving. One form of pension is a self-invested personal pension (SIPP).
An SIPP enables you to create an investment portfolio tailored to your circumstances and needs in retirement, and help make sure you take advantage of all of the tax relief that this form of pension allows. However, you should note that such tax benefits are subject to change, and their value to you specifically in the future will vary depending on your personal circumstances and investment objectives. As with any other kind of investment, those held within a SIPP can drop in value, and there is a risk of this being less than your initial investment. It is important your investment objectives are reviewed on a regular basis.
The tax benefits of an SIPP include:
- Up to 45% tax relief on pension contributions.
- Zero UK income tax or capital gains tax – meaning your pension investments are able to grow tax-free.
- Your pension can be inherited by your heirs tax-free. When you pass away, any remaining pension funds can be transferred to your heirs with no inheritance tax. If they make any withdrawals, these will also be tax-free if you passed away before the age of 75; if you were older, they will be taxed as income.
- You can make unrestricted withdrawals at any time from the age of 55 (58 from the year 2028). Up to 25% of this typically is tax-free, and the remainder is taxed as income.
- Pension Money gives you the flexibility to withdraw however you like – as a lump sum, several smaller sums, or as a regular income. When deciding, it’s important to remember that your pension fund may need to last for your entire retirement.
Zero capital gains or UK income tax
Pension investments can grow free of UK capital gains and income tax.
Unrestricted withdrawals from age 55, up to 25% tax-free
At any point from age 55 (57 from 2028), there is the option to make withdrawals, where typically up to 25% is tax-free and the remainder is taxed as income. The Pension Money SIPP provides you with the flexibility to make withdrawals as suits you – the whole fund as a lump sum; smaller lump sums; or, as a regular income. It is important to remember that a pension may need to fund your entire retirement.
Pass on your pension to your heirs tax-free
Any funds remaining in your pension when you pass away can normally be inherited by your heirs without inheritance tax applying. Usually, any withdrawals they subsequently make will be tax-free if you passed away prior to the age of 75. If you died at age 75 or older, any withdrawals they make will then be taxed as normal income.