A self-invested personal pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension, but the main difference is that with a SIPP you have more flexibility with the investments you can choose.
SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they want to.
Most SIPPs allow you to select from a range of assets, such as:
- Individual stocks and shares quoted on a recognised UK or overseas stock exchange
- Government securities
- Unit trusts
- Investment trusts
- Insurance company funds
- Traded endowment policies
- Deposit accounts with banks and building societies
- Some National Savings and Investment products
- Commercial property (such as offices, shops or factory premises)
These aren’t all of the investment options that are available – different SIPP providers offer different investment options.
› Tax relief on contributions to the pension scheme which can be used to purchase a property
› Any gain on the property value is free from Capital Gains Tax
› Open market rent is paid to the pension scheme
› All rent from tenants is received gross and is free from Income Tax
› Rental income payable by the tenants can be treated by them as a business expense for tax purposes and can reduce the income and corporation tax liability of the tenant
› Property is outside the member’s estate for Inheritance Tax
› Capital released back to the business when property is purchased from it can help with cash flow
>Opportunity to borrow funds towards the purchase and development of the property
› Once the mortgage is paid off, ongoing rent and contributions can continue to build the retirement fund. These can be used for other investments and/or to pay benefits on retirement
› The property may not need to be sold as continuing income could service pension payments
› Should the business fail then the property will be protected from creditors
SIPP’s are popular and being used quite regularly, so if you feel we have mentioned something you wish to discuss further, please contact a member of the team.