A SIPP (self-invested personal pension) is a personal pension that lets you choose the specific investments in your fund. For tax it is treated like any other registered personal pension: in 2026/27 contributions get relief up to 100% of your UK earnings within the £60,000 annual allowance, basic rate relief of 20% is added by the provider, and you can usually draw from age 55 (57 from 6 April 2028), with up to 25% tax-free subject to the £268,275 lump sum allowance. The main extra rule is that certain assets, notably residential property, trigger tax charges.
How a SIPP differs from other personal pensions
GOV.UK describes SIPPs as personal pensions that "allow you to control the specific investments that make up your pension fund". With a standard personal or stakeholder pension the provider offers a fixed menu of funds. With a SIPP you, or an adviser you appoint, decide what to buy, typically from a much wider range such as shares, funds, investment trusts, bonds and commercial property.
That freedom has two consequences. First, investment performance and costs are your responsibility, so the pot can go down as well as up. Second, because you can direct the investments, the scheme is an "investment-regulated pension scheme" under Schedule 29A to the Finance Act 2004, and the taxable property rules described below apply.
Tax relief on SIPP contributions
SIPPs use relief at source. You pay contributions net of basic rate tax and the provider claims 20% from HMRC.
- Basic rate. A net payment of £8,000 becomes £10,000 in the SIPP;
- Higher and additional rate. In England, Wales and Northern Ireland you claim a further 20% or 25% through Self Assessment, up to the amount of income taxed at 40% or 45%. Scottish taxpayers claim at the Scottish rates;
- No earnings. You can still pay up to £2,880 net a year, which the provider tops up to £3,600;
- Cap. Relief is limited to 100% of relevant UK earnings for the year, and total saving across all pensions above the £60,000 annual allowance (less if tapered or if the £10,000 money purchase annual allowance applies) is taxed back.
A SIPP must be registered with HMRC for relief to apply, and the provider will ask for your National Insurance number and a declaration before accepting relief-at-source contributions. Our guide to pension tax relief explains how the extra relief is claimed.
Employer and company contributions
An employer can pay into your SIPP directly, and many company directors use this route. Employer contributions are not personal contributions, so the 100% of earnings cap does not apply to them, but they still count towards your annual allowance. The company's ability to deduct them for corporation tax depends on the general rules for business expenses, which our guide to employer pension contributions covers.
What a SIPP can and cannot hold without a tax charge
Schedule 29A to the Finance Act 2004 defines "taxable property" for investment-regulated schemes as:
- Residential property. A building used or suitable for use as a dwelling, with its garden or grounds, subject to limited exceptions such as certain care homes, student halls and property occupied by an unconnected employee;
- Tangible moveable property. Physical assets that can be touched and moved, which HMRC says includes art, antiques and classic cars. Investment-grade gold bullion has been specifically excluded.
Holding taxable property directly or indirectly through a SIPP triggers unauthorised payment and scheme sanction charges, which usually wipe out the tax advantage. Commercial property is not residential property, so it falls outside these rules, and many SIPPs can hold an office, shop or warehouse as a pension investment. Before buying a property through a SIPP, confirm with the provider that they accept that asset and check the exceptions carefully.
Taking money from a SIPP
The access rules are the same as for any defined contribution pension. You can usually take 25% of the pot tax-free, up to £268,275 across all your pensions unless you hold a protected allowance. You then have six months to start taking the remaining 75%, which is taxed as income. The options include:
- Flexi-access drawdown. Leave the money invested and take adjustable withdrawals, which is how most SIPP holders draw an income;
- Annuity. Use some or all of the pot to buy a guaranteed income;
- Cash lump sums. Take cash directly, either the whole pot or in smaller sums, with 25% of each payment tax-free.
The first income withdrawal from drawdown, or a cash lump sum taken directly from the pot, triggers the £10,000 money purchase annual allowance for future contributions. Taking only the tax-free lump sum and leaving the rest in drawdown untouched does not.
Worked example
Tom, aged 50, is a self-employed consultant in England with profits of £90,000. He pays £24,000 net into a SIPP. The provider adds £6,000, so £30,000 is invested. His income taxed at 40% is £90,000 less £50,270, which is £39,730, more than the £30,000 gross contribution, so he claims a further £6,000 on his tax return. The real cost of £30,000 of pension saving is £18,000. He is well within the £60,000 annual allowance and his £90,000 earnings limit.
Protection, providers and inheritance tax
- Authorisation. Check the SIPP provider is authorised by the Financial Conduct Authority. If an authorised provider cannot pay, you may be able to claim from the Financial Services Compensation Scheme;
- Complaints. Complain to the provider first. They have eight weeks to respond, after which the Pensions Ombudsman or, for sales and advice, the Financial Ombudsman Service can step in;
- Inheritance tax. For deaths on or after 6 April 2027, most unused pension funds, including SIPPs, come into the estate for inheritance tax. See our guide to inheritance tax on pensions.
Sources: GOV.UK, Personal pensions and Tax on your private pension contributions; Finance Act 2004, Schedule 29A; Finance Act 2004, section 279; HMRC's Pensions Tax Manual at PTM125100 and PTM056520; and the HMRC policy paper on inheritance tax on unused pension funds.
Acumon does not recommend investments, but our private client tax team can work out your available allowance, claim higher rate relief and plan withdrawals. Directors weighing salary, dividends and company pension contributions can talk to our tax planning team.