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What the Taxation Requirements for a SIPP?

In the wake of Brexit and other economic developments, the UK government has proposed a number of pension reforms that are designed to empower saving and reduce the public sector burden.

These have been described as cynical cost-cutting measures by some, however, while Old Mutual Wealth (OMW) is also calling for these plans to be delayed until the economic climate begins to improve. So even though studies have suggested that these changes would not discourage retirement saving, there remain concerns that those on lower incomes could ultimately suffer.

Looking at SIPPs and their Taxation Rules

 Above all else, these changes reinforce the need for individuals to assume responsibility for their own financial future (regardless of their income level).

A key aspect of this is the cultivation of a private pension scheme, which can serve as an investment vehicle for your wealth and help to optimise your earnings. A SIPP (self-invested personal pension plan) is one of the best account types in the current market, although you will need to be aware of the rules and tax requirements that surround this vehicle.

Just like any other pension plan, the investments held within a SIPP are allowed to grow free from the demands of income and capital gains tax. This is usually because the money that you invest into your pension has already been subjected to income tax and national contribution levies, whether you have a permanent job or work as an independent contractor. In addition to this, you are also eligible to earn further tax relief on your SIPP contributions, with any money that you invest triggering a 20% top-up from the HMRC.

Is there anything else that you need to know about a SIPP?

For higher earners and contributors, there is also an option of claiming 25% in tax relief through their pension contributions. This is subject to the annual pension contribution threshold for the current tax year (which is now set at £40,000), and calculated in relation to your cumulative earnings for the same period.

According to industry specialists Bestinvest, there is another interesting tax benefit to be aware of when opening a SIPP. From the age of 55, account holders are eligible to withdraw up to 25% of their pension fund as a tax-free, lump sum, before leaving the rest to be used as taxable income over a concerted period of time.  T

his affords you freedom and greater control of your wealth, which could make all the difference in a strained and increasingly unpredictable economic climate.


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