Tax benefits of a SIPP

Tax relief rules for SIPPs and other pensions

Just like other pensions, investments in SIPPs grow free from Income Tax and Capital Gains Tax. You also get 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. Tax relief is limited by your annual earnings and the pension annual allowance.

Tax relief on pension contributions

Here we show you how three investors paying different Income Tax rates get tax relief on a £12,500 contribution into a SIPP or other pension:

  Basic-rate (20%) Higher-rate (40%) Additional-rate (45%)
Initial contribution £10,000 £10,000 £10,000
How much does the Government add? (20%) £2,500 £2,500 £2,500
How much can the investor claim back afterwards? £0 £2,500 (20%) £3,125 (25%)
Total tax relief £2,500 (20%) £5,000 (40%) £5,625 (45%)
Total cost of the £12,500 contribution £10,000 £7,500 £6,875

Children and people who don’t pay tax can also make pension contributions of up to £2,880 a year. With basic-rate tax relief this will make a total contribution of £3,600 a year into the SIPP or other pension.

Got questions about pension tax relief?

Speak to our pension experts for more information about pension tax rules:

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. Please contact us for guidance or advice if you are unsure whether a SIPP is right for you.

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