The Tax Benefits of SIPPs

January 26, 2015

Carbon-Credits-Sipp-investments[1]SIPPs have become increasingly popular over the last few years, and one of the main reasons for this is the many tax benefits that they offer.

If you’re considering your retirement options and the future of your finances, read on to find out more…

The Benefits

SIPPs offer a wide variety of tax benefits for investors looking to maximise opportunities and take control of their future finances. Thanks to the numerous advantages attached to them, they can make a really important tool for optimising your retirement savings.

Here are just a few of their many benefits:

Basic Rate Tax Relief on Contributions

For those who choose to invest in SIPPs, you’ll find yourself rewarded with basic-rate tax relief on any contributions (up to £40,000) that you make. This means that, in order to save £10,000, you would only need to invest £8,000. The remaining £2,000 would be paid for by the taxman on your behalf and added to your pension total.

Greater Tax Relief for Higher Rate and Additional Rate Taxpayers

The greatest boons are awarded to those who earn the most. If you’re among those citizens who pay tax at 40 per cent, you could claim an additional £2,000 back on your £10,000 contribution.

Tax Relief Even for Those Who Don’t Pay Tax

Strangely, even non-tax payers are able to claim full basic rate tax relief on personal contributions of up to £3,600. This rule even applies to children.

Tax Breaks

Once you reach 55, you’ll also find yourself eligible for tax breaks relating to your SIPP. You’ll be able to withdraw up to 25 per cent of your total fund as a lump sum, and you will not be charged tax for doing so. You can choose to spend this amount in any way you wish.

Further, your dependants will be eligible to receive your total pension account tax-free if you die before taking any benefits.

No Capital Gain or Income Tax

As an extra tax benefit, you’ll also find that any income received through investment returns will be immune from capital gain or income tax levies. Dividends will still be charged, but only at 10 per cent.

The popularity of SIPPs has grown exponentially in recent years, and when you look at the many tax benefits attached to them it’s easy to understand why. They make a very attractive alternative to other pension options. If you have the time and intelligence to gain a basic knowledge of investing, and a willingness to employ people who can help you, it could be that you too could benefit from investing in a SIPP.