What is a SIPP?
A Self Invested Personal Pension (SIPP) is a UK-based pension scheme that can invest in the full range of Her Majesty’s Revenue and Customs (HMRC) approved investments. This allows a greater range of investments choices than would be available under a personal pension scheme. How is a SIPP funded? It can be funded by a transfer from another pension scheme or directly by the scheme member.
Are there restrictions on the scheme member’s residence? A SIPP is available to both UK and non-UK residents. What if the scheme member holds a SIPP and moves to the UK? Nothing changes. When can benefits be taken? The scheme member can start taking benefits from the age of 55. Is it subject to UK IHT? No. Funds held within the SIPP are treated as being outside of the estate for IHT.
How much will be left for my loved one? Unlike most UK Pension Schemes, you can leave 100% of the value of your SIPP to who ever you choose. What is the maximum Pension Commencement Lump Sum (PCLS) that can be taken? The maximum PCLS (or tax-free cash) that can be taken is 25% of the value of the scheme. Depending upon the scheme member’s country of residence, this could be tax free.
Is it subject to UK income tax if the scheme member is UK resident? Following the introduction of Pension Freedoms in 2015, there are various options as to how benefits can be taxed. Ordinarily a regular income from the scheme will be arising income for UK income tax, however, if a PCLS is not taken then 25% of each regular payment could be taken tax free What is the tax treatment of benefits if the member is not UK resident? This will depend on the scheme member’s country of residence, any Double Taxation Agreement (DTA) in place between the UK and that country, and which country is granted taxing rights in respect of pension income/benefits under the DTA.
When and how can i access the benefits? From the Normal Pension Age of 55 it is now possible to access as much of your pension as you wish. There are 3 main options to access your pension savings. You can also choose any combination of these options: +Lifetime annuity +Flexi-access drawdown +Lump sum payment What am I able to invest in? The great advantage of holding a SIPP is the wide freedom and flexibility you will have in your choice of investments.
You are able to invest in: + Collective Investment Funds – Unit Trusts, Investment Trusts, Open Ended Investment | Companies (OEICs), Insurance Company Managed Funds. + Stocks and Shares – Equities, UK Gilts, Bonds and other fixed interest securities, Futures and Options, Permanent interest bearing shares. + Cash and Deposit + Traded Endowment Plans + Structured Notes + Loans In addition to the above, with a SIPP you are able to invest in commercial property which you can either lease or keep on for your own use. The purchase you make must be paid on open market terms and the maximum you can borrow is 50% of your existing SIPP fund value.
The property you purchase will become an asset of the pension fund so therefore the value of it will be used to provide you with your retirement benefits. SIPPs can also give you the freedom to switch out of poorly performing investments, therefore allowing the potential for better returns. This can allow investors to adopt a more aggressive investment strategy than with other pension funds while receiving the same tax relief. Some of the Information above has been taken from RL360 adviser site.