Take a SIPP of an alternative retirement solution

Have you reviewed your pension recently?

A Self-Invested Personal Pension (SIPP) is an investment savings vehicle aimed specifically at producing income, or a tax-free lump sum with a reduced income, in retirement.

A SIPP is a pension that gives you greater flexibility and control over your savings and where they are invested. It is your personal tax-efficient wrapper enclosing investments chosen by you to meet your own needs.

The range of permitted investment options gives you the flexibility to vary the structure, diversification and risk profile of your portfolio to suit your circumstances.
SIPPs can be held and contributed to by every UK resident under the age of 75 and are ideal if you are comfortable with making your own investment decisions and want a tax-efficient way to save for your retirement.
The range of investments you can hold in a SIPP are many and varied, ranging from stocks and shares to futures and options, and from collective investments such as unit trusts to bank deposits and commercial property.

The list of permitted investments is very wide and includes:

UK and international company shares

UK and international government and company debt (gilts and corporate bonds)

Collective investment schemes such as unit trusts, pension funds, investment trusts

Commercial property

Deposit funds and currency

Commodities

Futures and options

Warrants

Derivatives

The tax treatment of a SIPP is identical to that of a conventional personal pension. Individual contributions receive automatic tax relief at the holder’s marginal rate while any contributions by employers are allowable against corporation tax or income tax.

Income taken in retirement from either an annuity or via an unsecured pension plan (formerly income drawdown) is taxed as earned income at the member’s highest marginal rate.

Understandably for a more flexible style of contract, the structure of a SIPP is slightly more complex than a personal pension and necessitates the involvement of a scheme administrator. The administrator exercises control over what happens within the SIPP and ensures that the requirements for tax approval continue to be met. 

SIPP members can invest in commercial properties - either freehold or leasehold - including shops, offices, warehouses, industrial and business units, hotels, public houses, leisure complexes and land.

Some of the key attractions of commercial property investments are:

νThe property, when sold, is free of capital gains tax (CGT)

There is no limit on the number of properties which can be purchased (providing funds are available)

Borrowing is allowable to assist in the purchase

Legal costs and expenses may be payable from the SIPP (except stamp duty land tax)

Rental income is paid gross into the SIPP

VAT may be reclaimable by the SIPP if the property is VAT registered

The ability to buy a property from which the member can operate their business, without this being a significant outlay to the company (although the member’s business must pay a commercial rent to the SIPP)

The SIPP can purchase commercial property that the member, or their business, already owns (provided the price is at market value)

The member does not have to sell the property when they decide to draw a pension from the SIPP

The member or their employer can use a commercial property instead of cash when making a tax relievable contribution to the SIPP

A SIPP arrangement may well be more expensive than traditional personal pensions or stakeholder pension plans due to the greater investment opportunities that they allow and other related charges.

The value of investments and income from them can fall as well as rise and is not guaranteed.