A SIPP is a Self-Invested Personal Pension.

It is a UK pension that gives the individual full control over how their retirement money is invested, rather than being limited to a small range of standard pension funds.

Think of it as a DIY pension wrapper with major tax advantages.

Core concept

A SIPP is simply a tax-efficient pension wrapper that allows investment into a very wide range of assets.

Instead of the provider choosing the investments, the investor (or their adviser) chooses them.

The key tax benefits

1) Income tax relief on contributions

Contributions receive tax relief at the investor’s marginal rate.

Basic rate taxpayer
Pay £8,000 → HMRC adds £2,000 → £10,000 invested.

Higher rate taxpayer
£10,000 contribution effectively costs £6,000 after tax relief.

Additional rate taxpayer
£10,000 costs £5,500.

This is one of the strongest tax reliefs available in the UK.

2) Corporation tax relief (for company contributions)

If a limited company pays into a director’s SIPP:

• It is normally an allowable business expense
• Saves corporation tax
• No employer NIC
• No employee tax
• No dividend tax

This makes SIPP contributions one of the most tax-efficient ways to extract profits.

3) Tax-free investment growth

Inside a SIPP:

• No income tax on dividends
• No capital gains tax
• No tax on interest

Investments grow in a tax-free environment.

4) Tax-efficient retirement withdrawals

From age 55 (57 from 2028):

• 25% of the pension can be taken tax free
• Remaining 75% taxed as income when withdrawn

With planning, withdrawals can be managed to minimise tax.

What SIPPs can invest in

This is where SIPPs differ from standard pensions.

Typical options include:

• Shares and ETFs
• Investment funds
• Commercial property
• Corporate bonds
• Government bonds
• Cash deposits

This flexibility is why many business owners use SIPPs.

Property inside a SIPP (major business planning opportunity)

A SIPP can buy commercial property.

Typical example:

A company buys its premises via the director’s SIPP.

Benefits:

• Company pays rent to the SIPP
• Rent is tax deductible for the company
• Rent grows tax free in the pension
• Property gains are CGT-free inside the SIPP
• Removes property from future inheritance tax estate

This is powerful long-term planning.

Annual contribution limits

Standard annual allowance: £60,000 per year

Possible carry forward of unused allowances from previous 3 years.

High earners may face tapering, but planning opportunities still exist.

Why business owners love SIPPs

For directors, SIPP contributions are often far more tax efficient than dividends.

Typical comparison:

£10,000 profit extracted as dividend → approx £7,500 net
£10,000 paid into SIPP → full £10,000 invested

Huge long-term difference.

Commercial opportunity insight

SIPPs are a major advisory opportunity:

• Pension contributions are often underused
• Directors rarely understand the tax efficiency
• Links perfectly to profit extraction planning
• Leads to recurring annual planning work

This fits naturally into profit extraction and Financial Health Reviews.