What are SIPPs? Sipps are a form of personal pension that allows you to save for your retirement by building an investment portfolio that you choose and manage yourself (and/or with a financial advisor).
Tax Benefits
Your contributions qualify for tax relief at the highest rate you pay.
Your investments within the fund are exempt from income tax and capital gains tax (with exception of dividend payments on UK equities).
All personal contributions are payable net of basic rate tax. The pension administrators reclaim basic rate tax relief on your contributions form HM Revenue & Customs and credit it to your account. If you are a higher rate taxpayer the difference between higher rate and basic rate tax relief can be reclaimed via self assessment.
Annual Allowance
There is no limit on the amount of contributions that can be paid to a registered pension scheme by you, or on your behalf. However, there are limits on the amount of tax relief these contributions will attract.
Your member contributions will receive tax relief up to the higher of £3,600 and 100% of UK earnings in the tax year of payment. Your employer can pay unlimited contributions, normally with full tax relief, on your behalf.
The annual allowance is a further mechanism by which HM Revenue & Customs limits the amount of tax privileges on pension savings. Where the increase in your tax relieved pension savings in a year exceeds the annual allowance, a tax charge of 40% is payable by you on the excess.
The increase in your tax relieved pension savings is the total of the contributions paid by you, or on your behalf, to all registered pension schemes and, if you are a member of a final salary pension scheme, includes the value of any increase in benefits under that scheme.
The annual allowance will be:
| Maximum annual contributions to personal pension plans in any tax year |
| 2006/07 | £215,000 |
| 2007/08 | £225,000 |
| 2008/09 | £235,000 |
| 2009/10 | £245,000 |
| 2010/11 | £255,000 |
Full concurrency is allowed i.e. you can be a member of a Sipp, Personal Pension and Company Pension Scheme concurrently.
Lifetime allowance
This is the mechanism by which HM Revenue & Customs limits the tax privileges available to an individual with "excessive" pension savings. Each time new benefits are taken, a portion of your lifetime allowance is used up.
The lifetime allowance for tax-privileged pension savings is:
Tax Year | Allowance |
| 2006/07 | £1.5m |
| 2007/08 | £1.6m |
| 2008/09 | £1.62m |
| 2009/10 | £1.75m |
| 2010/11 | £1.8m |
Pension savings in excess of the lifetime allowance will be subject to a 25% tax charge if taken as a taxable pension or a 55% tax charge if taken as a lump sum.
information provided by Barclays Stockbrokers
