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        Updated: April 08, 2024

        SIPP Rules and Regulations

        Confused about how the SIPP rules work? We’ve got you covered. Here’s everything you need to know.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        When you first start looking into SIPPs (self-invested personal pensions), it can feel confusing at times when trying to wrap your head around all the rules and regulations.

        To clear things up, this guide covers all the essential details you need to know about SIPP rules. We’ll explain everything worth knowing about withdrawals, age limits, investment restrictions, and also how your pension fits in with the current HMRC tax rules.

        Keep reading for a complete explanation or click on a link below to jump straight to a section…

        What are the rules for SIPPs?

        This is a broad question because of the huge range of possibilities and nuances that come with a SIPP. The rules can vary depending on your personal circumstances, the type of SIPP you’re using, and the investments you’re using for retirement.

        Whether you’re pre-retirement or at-retirement will also play an important role in the pension rules that apply.

        But, here are some of the basic SIPP rules that apply to just about everyone:

        • You need to be a UK resident to open and contribute to a SIPP.
        • Anyone under 75 can open and pay into a SIPP but there’s no age limit for transferring pension pots.
        • You’re usually unable to access your SIPP without penalty until the age of 55 – rising to 57 in April 2028 (there are some providers who will consider allowing access before this age, however there will be charges incurred).
        • The value of a SIPP will be taken into account when calculating your lifetime allowance and contributions must remain within your annual allowance.

        It’s possible to make contributions on a regular basis, as a lump sum, or even as an allowable business expense if you run a limited company.

        HMRC SIPP regulations

        This can be a large and complex topic to cover. Largely because everyone’s tax situation will be unique and so the exact rules depend on the rest of your finances.

        But there are some overarching regulations set out by HMRC that apply to your SIPP:

        Annual allowance:

        Each tax year you can contribute up to £40,000 or 100% of your earnings (whichever is lower).

        Contributions over this amount won’t get tax relief and will be classed as taxable income for that year, meaning it’s subject to income tax. Some SIPP providers allow you to pay any annual allowance charge clawback from your pension, known as ‘Scheme Pays’.

        High earners:

        If you have a yearly income above £200,000 (and adjusted income over £240,000), your annual allowance gets tapered down on a gradual basis and can go as low as £4,000.

        Sometimes you are able to roll over unused allowance amounts from the last three tax years to reduce or lower any tax charges, this is called ‘carry forward’.

        Lifetime allowance:

        This HMRC rule applies to any of your pensions (excluding your State Pension), and not just your SIPP.

        It’s the total amount you can hold across all pension pots and you may have to pay a tax charge if you breach the threshold – but this is only assessed upon crystallisation.

        Current lifetime allowance for most is £1,073,100 and this will remain frozen until the 2025/26 tax year.

        Tax-free growth:

        Any investments held in your SIPP can grow tax-free. That means your portfolio can compound with no income or capital gains tax (CGT).

        So, your investment growth can snowball without a tax burden until you reach retirement and access your SIPP. And if you opt for the drawdown option, the funds which remain in your SIPP can continue to grow tax-free.

        Property:

        There are various property purchase rules set out by HMRC. The exact regulations that apply will depend on the type of property held in your SIPP.

        So, if you plan on purchasing land or perhaps want to hold residential property, commercial property, buy-to-let property, or a holiday home – it’s well worth getting some specific tax advice from an expert pensions advisor.

        Residential property is generally not allowed to be held within a SIPP as its sale would be classed as a chargeable event and could incur a tax charge of as much as 55%.

        Overseas property:

        Typically, you can’t invest in overseas property with your SIPP. But, an experienced advisor can still find alternative solutions if that’s your goal.

        Tax relief rules

        The rules around SIPP tax relief is another area that involves plenty of nuances. And, is best discussed with an expert pensions advisor that can take a look at your whole finances.

        With that said, here are the basic points worth understanding about SIPP tax relief rules:

        • Tax relief only applies up until you reach your annual allowance.
        • Basic-rate tax ‘relief at source’ of 20% is claimed from HMRC by your SIPP provider.
        • Higher-rate and additional-rate taxpayers can claim further relief via a self-assessment tax return.
        • Scottish residents can be subject to different tax relief rules.
        • Non-UK tax residents and those who earn less than £3,600 a year can still contribute up to £2,880 (net) yearly and still get tax relief, meaning a total of £3,600 (gross) in your SIPP.

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        Withdrawals and drawdown

        At retirement, you’re able to withdraw 25% of your total SIPP pot as a tax-free lump sum. Or, you can take multiple lump sums and pay no tax on the first 25% of each withdrawal, paying tax on the remaining 75%.

        SIPP drawdown rules for a flexible retirement income provides you with plenty of options to explore. You still get the tax-free lump sum from HMRC and most of the same withdrawal rules also apply to drawdown.

        You have to have reached minimum pension age to begin withdrawing from your SIPP. Some providers can facilitate earlier withdrawals, but you could face charges from them – plus a 55% tax bill from HMRC.

        If you are approaching retirement, or even if it’s still a way off, get in touch and make an enquiry. We’ll introduce you to an independent financial advisor that will carry out a full pension review for free.

        Age limits

        Currently, the two main ages to take note of are 55 and 75. These are the major age milestones that are relevant to SIPPs.

        Age 55

        As it stands, 55 is the age you need to reach before you can access your SIPP – known as minimum pension age. However, it’s best to get some expert advice well before this as it can help to make the most of your pension. Waiting until you reach 55 before getting guidance could add unnecessary pressure and potentially limit your retirement options.

        It’s also worth keeping in mind that the SIPP age limit of 55 is set to rise to 57 in April 2028.

        What happens to a SIPP at age 75?

        This is the next important age limit relevant to SIPPs. Currently, you’re able to open and contribute to a SIPP until you reach the age of 75. The age limit of 75 is also important because it can impact whether you can pass down your SIPP to a beneficiary tax-free.

        Death and inheritance rules

        This may sound like a morbid topic, but it’s an important one to cover. After all, it’s likely you’ll be using your SIPP in the later stages of your life. Failure to prepare for the inevitable could end up costing your family, especially when it comes to inheritance tax (IHT).

        Here are the main takeaways on SIPPs, death, and taxes:

        • Death: if you die before 75, even if it’s before 55, an untouched (or ‘uncrystallised’) SIPP can pass down free of tax within two years – as long as the value is under the lifetime allowance threshold. After 75, any money withdrawn from your SIPP by beneficiaries will be taxed as part of their income for that year.
        • Beneficiaries: your SIPP benefits will pass down to your named beneficiaries. But, without an ‘expression of wishes’ form for trustees or administrators, if you die, the scheme can nominate an individual or entity (perhaps a charity) to receive your benefits. So, it’s always worth getting qualified advice to make sure your paperwork is up to date.
        • Inheritance tax (IHT): if you don’t access your SIPP before you pass, this pension doesn’t count as part of your estate for IHT purposes. But, once you’ve started withdrawals or drawdown from your SIPP, current HMRC rules mean the value of those withdrawals – once they hit your bank account – will form part of your estate.

        Transferring your pension or borrowing against it

        Some other benefits of a SIPP include your ability to transfer pensions, borrow against your pension pot, and provide loans.

        Transfers

        SIPP transfer rules can be flexible to suit your financial needs. But, it’s a complex area that will require the support of a specialist pensions transfer advisor if you want to properly follow all the rules and regulations for transferring.

        Borrowing and loans

        Borrowing through your SIPP can open up some unique opportunities like commercial property investment. Right now, you can borrow up to 50% of the net value of your SIPP.

        You also have the ability to grant loans with your SIPP, lending to individuals or businesses for a return. But, the rules state you can’t loan directly or indirectly to ‘connected parties’ – this is classed as an ‘unauthorised payment’ and would incur tax charges. Also, you can lend up to 50% of the net value of your pension fund with most providers, but there can be some flexibility to lend more.

        Get matched with an independent SIPP pensions expert

        The rules and regulations for SIPPs can be complex to grasp and they can change on a regular basis. Advice from an independent pensions advisor is the best way to make the most of your SIPP whilst staying within the rule framework.

        We offer a free, advisor-matching service. This means we’ll do a quick assessment of your pension needs, and then introduce you to a specialist independent financial advisor that fits your individual retirement goals.

        Just call 0808 189 0463 or make an enquiry. We’ll introduce you to an experienced pensions advisor for a free, no obligation chat about your SIPP.

        Speak to a expert today

        FAQs

        Yes, this is definitely possible. The current rules mean that you can have multiple SIPPs if you want. An expert pensions advisor will be able to let you know if this is in your financial best interest.

        Yes! It’s worth comparing the benefits of a workplace pension vs. SIPP, but you can hold both if you want to. Each has its own advantages and an experienced financial advisor will be able to show you the best and most efficient way to arrange your pensions.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

        Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.