The major SIPP benefits are those associated with SIPP tax benefits. Besides the ability to be in total control of their pension pot, a SIPP offers the following tax benefits specifically:
- Tax-relief on contributions. If a basic-rate taxpayer invests £8,000 in a SIPP, the government adds £2,000 (20%). Higher-rate tax and additional rate tax payers can claim an additional 20% and 25% tax relief respectively on SIPP contributions. This means that a £10,000 gross SIPP contribution could cost an additional rate tax payer just £5,500. Non-earners are also eligible to contribute to a SIPP – paying in up to £2880 per year with the government adding £720 for a gross sun of £3,600 per year.
- Investments within a SIPP are allowed to grow free of capital gains tax
- At the age of 55, an investor can take up to 25% of their SIPP fund as a tax-free lump sum with the remainder being taxed as income.