Have you considered setting up a self-invested personal pension (SIPP) for your retirement, which you and your employer can contribute to? Read below to find out everything you need to know.

What is a SIPP?

A SIPP is a self-invested personal pension, for those who want to manage their own investments.

If you want to set up a SIPP, then you can only do this with a specialist SIPP provider, or you can set up through an insurance company.

The advantage of having a SIPP is that they have a range of potential investments, that other personal pension schemes do not have access to.

What do I need to know?

If you choose to have a SIPP then you can invest in many assets, including:

  • Quoted and unquoted shares;
  • Insurance funds;
  • Unlisted shares;
  • Property and land (excluding residential property);
  • Collective investment schemes (OEICs and unit trusts);
  • Investment trusts.

If you want to invest in a commercial property, then you can borrow money through your SIPP.

For example, you could use your SIPP to take out a mortgage to fund the purchase of a property, which could be rented out. The income of the rental property would be paid back into the SIPP to pay off the mortgage.

How much can I contribute?

The more you contribute to your SIPP the greater the benefits will be to your pension.

You can make tax-relieved contributions to the SIPP until the annual allowance limit is exceeded.

The limit is:

  • £40,000 for 2019/20

The annual allowance is reduced by £1 for every £2, which adjusted net income exceeds £110,000, until the minimum level of £10,000 is reached.

Anyone with adjusted net income of £210,000 or above and threshold income of £110,000 will only receive the minimum annual allowance of £10,000.

If you do not use all of your annual allowance, then you can carry it forward for three years.

You should also be aware that your contributions will be made from your net pay.  

When can I withdraw from the SIPP?

Once you turn 55, it will be possible to get a tax-free lump sum to the value of 25% of the accumulated funds.

If you choose to withdraw more, then the excess will be taxed at the individual’s marginal rate of tax. 

Further Actions

You should make sure that you look into the potential benefits that a SIPP may offer you and decide whether that is the best way to save for your retirement or invest in property.

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