Self-Invested Personal Pensions (SIPPs)
SIPPs are fundamentally the same as a Personal Pension (PPP) but provide greater investment flexibility which can include commercial property investments such as offices, shops and factories. They have identical tax treatment to Personal Pensions, the limits on contributions are the same, the tax relief is the same and they have the same flexibility in retirement.
SIPPs are generally sold when you want an element of flexibility over where your money is invested to fit in with your overall investment strategy. Many SIPP providers allow access to virtually the whole market of assets within your SIPP, giving considerable flexibility with how your money is invested. Personal Pensions on the other hand are often limited to a very restricted fund range.
A big attraction of a SIPP is that you can take out a mortgage within the SIPP to help you buy commercial property for investment purposes. This can include your own company’s office, factory or shop. SIPPs can borrow up to 50% of their value allowing you to buy a property worth £150,000 with only £100,000 of pension savings. If you pay tax at (40%), a £60,000 contribution will enable you to buy a £150k property within the SIPP. All rental payments will come into your pension tax-free and you can either keep the property when you retire within the SIPP and utilise the rental income as part of your retirement income or sell the property and use the money to provide you an income.
At Foundation Financial Planning we have many years’ experience with investment and tax planning using both SIPPs and Small Self-Administered Schemes (SSAS pensions) and can provide you advice if you are looking at the potential of a SIPP or SSAS or currently have one in place.
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