What are SIPPs?
SIPPs stand for Self Invested Personal Pensions and that’s exactly what they are - a pension fund where you decide how and where your contributions are invested.
The purpose of SIPPs, as with any pension, is to provide you with a tax efficient way of building sufficient funds for your retirement income.
The key characteristics of SIPPs are control, choice and flexibility. SIPPs are exactly what a pension should be: an investment vehicle with generous tax breaks that works for you and is controlled by you.
You decide how you wish to invest your money across a wide range of investments permitted by the Inland Revenue.
By separating the process of administering the pension and investing in assets held, you retain overall control, which allows you to build a diverse portfolio of investments that can be changed whenever required.
In addition to providing a pension income on retirement, SIPPs can also provide you with a tax-free lump sum and a flexible income.
One of the main differences is that SIPPs not only allows you to invest in property, but will allow you to borrow money against your fund to assist with the purchase of such a property.
Sipps-Pensions.co.uk General Disclaimer
Under current rules, SIPPs allow you to take a mortgage of up to 75% of the SIPPs property value. You can then lease the property to a business that you own (on commercial terms), or to a third party. If you're a business owner, SIPPs can be tax-efficient since the rent comes out of the business's pre-tax income and comes into the SIPPs as tax-free investment income.
SIPPs have the same limits on contributions, the same 25% restriction on the tax-free lump sum on retirement and the same requirement to buy an annuity by the time you reach 75.
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