Self Invested Personal Pension


For self employed individuals that want to manage their own pension fund assets, a self invested personal pension scheme (SIPPs) will allow this option. SIPPs operate on a similar basis to insured personal pensions with access to collective funds, except that the Inland Revenue also allows direct investment in UK and overseas quoted securities as well as commercial property. However, between the extremes of an insured personal pension and SIPPs are private managed funds (PMFs). 

Unlike small self administered schemes (SSAS), which is a defined benefit regime, the defined contribution regime of a SIPPs restricts the contributions made to that of a personal pension with no facility to make loans to members. Most SIPPs will start with a significant pension transfer from an existing occupational pension scheme or personal pension. The main advantage of SIPPs to some individual investors or partnerships is the ability to purchase their own commercial property that will then be let back to the individual or partnership.

What is a SIPP?

A Self-Invested Personal Pension (SIPP) is a personal pension wrapper that offers individuals more freedom of choice than conventional personal pensions. They allow investors to choose their own investments or appoint an investment manager to look after the portfolio on their behalf.

Individuals have to appoint a trustee to oversee the operation of the SIPP, but having done that the individual can effectively run the pension fund on his or her own.

A fully fledged SIPP can accommodate a wide range of investments under its umbrella, including shares, bonds, cash, commercial property, hedge funds and private equity.

Speak to the independent pension advice team over which SIPP to invest in or more information on the benifits of investing in SIPPs.



Benifits of a Commercial SIPP

Investing in commercial property may be a particularly useful facility for owners of small businesses, who can buy premises through their pension funds.

There are tax advantages, including no capital gains tax to pay, in using the fund to buy commercial property.

If you own a business and decide to use the property assets as part of your retirement planning, you would pay rent directly into your own pension fund rather than to a third party, usually an insurance company.

Ordinarily, a business property will, assuming that its value increases, generate a tax liability for the shareholders or partners. Unless, that is, you sell the property to your SIPP. Then the business can pay rent to your pension fund, on which it pays no tax, and any future gain on the property will also be tax-free when it is sold.

Where investment are made in commercial property, you may have periods without rental income, and in some cases, the pension fund may need to sell on the property when the market is not at its strongest.

For more information on investing in a commercial SIPP please speak to one of our independent SIPP pension advisors.



SIPP Transfers

Before transferring to a SIPP it is important to check whether the benefits, such as your tax-free cash entitlement, are comparable with those offered by your existing pension.

Make sure, too, that you are aware of any penalties you could be charged or any bonuses or guarantees you may lose.

If you have had an annual income of £130,000 or more since April 2007 and make regular contributions to a pension, changes announced in the 2009 Budget could affect you. Switching regular contributions to a new pension may mean future regular contributions are subject to a £20,000 limit.

A SIPP will typically accept most types of pension, including:

 

Many SIPP providers will now permit you to set up a lump sum transfer contribution from another pension for as little as £5,000, and while most traditional pensions limit investment choice to a short list of funds, normally run by the pension company's own fund managers, a SIPP enables you to follow a more diverse investment approach.

Most people under 75 are eligible to contribute as much as they earn to pensions including a SIPP (effectively capped at £255,000 each tax year). For instance if you earn £50,000 a year you can contribute up to £50,000 gross (£40,000 net) into all your pension plans combined in the 2010/11 tax year.

If your total annual income has reached £130,000 since April 2008, you may experience further restrictions on the amount you can contribute and obtain higher or additional rate tax relief.

The earnings on which you can base your contribution are known as Relevant UK Earnings. If you are employed this would generally be your salary plus any taxable benefits. If you are self employed, this would normally be the profit you make (after any adjustments) for UK tax purposes.

Even if you have no Relevant UK Earnings, you can still contribute up to £3,600 each year to pensions. Of this the government will pay £720 in tax relief reducing the amount you pay to just £2,880.



SIPP Investments

Funds

You can typically choose from thousands of funds run by top managers as well as pick individual shares, bonds, gilts, unit trusts, investment trusts, exchange traded funds, cash and commercial property (but not private property). Also, you have more control over moving your money to another investment institution, rather than being tied if a fund under-performs.

Other SIPP Investments

With a SIPP you are able to invest in:

  • Cash and Deposit accounts (in any currency providing they are with a UK deposit taker)

  • Insurances company funds

  • UK Gilts

  • UK Shares (including shares listed on the Alternative Investment Market)

  • US and European Shares (stocks and shares quoted on a Recognised Stock Exchange)

  • Unquoted shares

  • Bonds

  • Permanent Interest Bearing Shares

  • Commercial property

  • Ground rents in respect of commercial property

    • Unit trusts

  • Open ended investment companies (OEIC)

  • Investment trusts

  • Traded endowment policies

  • Warrants

  • Futures and Options

Once invested in your pension the funds grow free of UK capital gains tax and income tax (tax deducted from dividends cannot be reclaimed).


Read more about SIPPS


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