What is a SIPP?
A Self Invested Personal Pension is a UK Government approved pension scheme that offers investors the freedom to choose and manage their own investments.
The government department responsible for the approval of SIPPs is HM Revenue and Customs. According to the official documents from HM Revenue and Customs a SIPP is "an arrangement within a personal pension scheme, in which the member has the power to direct how the contributions are invested. Members may make choices about what assets are bought, leased or sold, and decide when those assets are acquired or disposed of."
The sole purpose of the investment must be to provide benefits for retirement; the investor cannot receive any benefits from the scheme other than in the agreed forms.
Why choose a SIPP?
They offer more freedom of choice for investors in the type of investment they can place their pensions in. SIPPs are flexible and allow frequent transactions and charges are usually based on a percentage of the amount transacted, therefore charges are higher for more active investors. There are tax benefits to SIPPs; income is free from tax and growth is free from capital gains tax.
Who can invest in a SIPP?
Anyone under the age of 75 and a resident within the UK can place investments in a SIPP. A SIPP can be opened for anyone under the age of 18 by their parent or legal guardian.
How are investments made into SIPPs?
Investments can be made in the form of occasional lump sums or regular payments making them a flexible pension option. Usually fees are charged on set up and annually for administration fees although these can differ from company to company.
Can I place a property investment in a SIPP?
Commercial property is permitted but residential property cannot be held directly in a SIPP due to the other benefits that can be gained. Permissible properties with a residential aspect according to the HM Revenue and Customs are hotels, public houses, care homes and guest houses.
Are there any restrictions?
Funds can only be accessed after the investor reaches the age of 55, other rules include: how much you can invest into a plan in any tax year, where investments can be made and how benefits can be drawn out of the plan. Rules may change when the Chancellor's Budget changes.
When considering pensions, investments and savings always seek advice from an appropriate professional body.