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Understanding SIPP tax relief and benefits

Tax relief rules for SIPPs

With investment, your capital is at risk.

Tax relief is one of the key benefits of a SIPP. Learn how the rules work for SIPPs and other types of pensions.

Just like other pensions, investments in Self-invested Personal Pensions (SIPPs) grow free from income tax and capital gains tax. But your SIPP tax benefits don’t end there.

You also receive tax relief on your SIPP contributions. The Government tops up any money you pay into your SIPP and other pensions by 20%. Higher and additional-rate taxpayers can claim back a further 20% and 25% respectively. SIPP pension tax relief is limited by your annual earnings and the pension annual allowance.

Taxation depends on individual circumstances. Tax rules may change.

Read on to explore the key facts and figures you’ll need to understand SIPP contributions and tax relief.

How does SIPP tax relief work?

Our SIPP tax relief example looks at three people who pay tax at different rates. Each contribute £10,000 into their SIPP but the net amount they pay in differs because the tax relief they receive on their SIPP contributions is adjusted for their tax-band. SIPP tax relief is no different to tax relief on other pensions and this varies according to whether you are a basic, higher or additional-rate taxpayer.

SIPP Value Basic-rate Higher-rate  Additional-rate
How much each person pays into their SIPP £8,000 £8,000 £8,000
How much the Government adds £2,000 £2,000 £2,000
How much can be claimed back via a tax return £0 £2,000 £2,500
Total SIPP tax relief

£2,000

(20%)

£4,000

(40%)

£4,500

(45%)

Total amount each person pays out for their £10,000 SIPP contribution £8,000 £6,000 £5,500

There is SIPP tax relief for non-taxpayers and children too. They’re allowed to make contributions of 80% up to the total earnings within the personal allowance or £2,880 net if their earning are below this amount. The Government adds a further 20% basic-rate tax relief which boosts their annual contributions into a Junior SIPP, SIPP or another pension.

What are the limits on SIPP tax relief?

Whether you’re getting tax relief on a SIPP or other type of pension, it’s vital to remember that certain limits apply. The tax relief you receive is restricted both annually and over the course of your lifetime.

Learn more about your SIPP tax allowances.

Got questions about SIPP pension tax relief?

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

Frequently asked questions

When you pay into your SIPP your provider will claim and apply basic SIPP tax relief on your behalf. If you’re a higher-rate or additional-rate taxpayer, you’ll need to claim back the extra 20% or 25% via your self-assessment tax return.

Yes – the same is true for all pension contributions. It’s one of the useful benefits of a SIPP. Your money grows free from dividend tax, capital gains tax and income tax. Read more insights about dividends and capital gains tax by clicking on the links.

When you reach 55, you can usually take 25% of your pension fund tax-free. There is tax to pay on the remainder of your SIPP or other pension.

You have freedom over how you take the money from your SIPP when you retire. In fact, you don’t even have to wait until you retire. You can take money out when you reach 55. You can take lump sums, drawn an income, buy an annuity with your SIPP savings or even leave your SIPP invested.

*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.

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