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Tax benefits of a SIPP

SIPPs give you the same tax relief as other pensions

Just like any other pension, investments held within your SIPP grow free from Income Tax and Capital Gains Tax. You also receive tax relief on your pension contributions – any money you invest in your SIPP will be topped up by 20% by the taxman, and higher or additional rate taxpayers can claim back a further 20% or 25% respectively through their tax return. Tax relief is given on contributions up to the total value of your annual earnings, and is subject to the pension contribution limits for the current tax year.

The table below shows how three investors paying different tax rates are given tax relief on a £12,500 contribution into a SIPP or other pension:

Basic Higher (40%) Additional (45%)
Gross contribution £12,500 £12,500 £12,500
How much does the investor contribute? (80%) £10,000 £10,000 £10,000
How much does the Government then add? (20%) £2,500 £2,500 £2,500
Total pension value £12,500 £12,500 £12,500
How much extra tax relief can the investor then reclaim via their tax return? £0 £2,500 (20%) £3,125 (25%)
Total tax relief £2,500 (20%) £5,000 (40%) £5,625 (45%)
Total cost to the investor of the £12,500 SIPP £10,000 £7,500 £6,875

Even if you do not pay tax, you can still make net pension contributions of £2,880 a year. You will receive basic rate tax relief of up to £720, making a total annual investment of £3,600 into your SIPP.

Calculate your pension tax relief

Our free calculator shows how much tax relief you could receive on contributions into your SIPP or other pension.

Pension Tax Relief Calculator

The Government automatically adds 20% basic rate tax relief.

Tax relief for higher rate taxpayers (40%)

Tax relief for additional rate taxpayers (45%)

Amount you pay towards your pension

Your total tax relief could be as much as:

Percentage the Government contributes (effective rate of Government contribution):

Take a tax-free lump sum from your pension

From the age of 55 you used to be able to take up to 25% of your pension as a tax-free lump sum and draw a taxable income from the rest. But under the new pension changes, you now have total freedom over how you access and take an income from your pension. This is a big decision that shouldn’t be taken lightly, but we have a nationwide team of financial planners who can help you with the process. Call us on 020 7189 2400 to discuss your options and find out more. Alternatively, you can visit Pensionwise.gov.uk for free guidance.

Important Information

SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Self-directed investors should regularly review their SIPP portfolio, or seek professional advice, to ensure that the underlying investments remain in line with their pension objectives. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change. Please note the term Best is a brand name of the Bestinvest SIPP.


Past performance is not a reliable indicator of future returns

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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© Tilney Bestinvest Group Ltd 2016.

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