A Self-Invested Personal Pension, or SIPP, is a UK pension wrapper that lets you choose and manage your own retirement investments instead of leaving those decisions to a fund manager or insurance company. Self-invested personal pensions were introduced by the Finance Act 1989 and offer the same tax relief on contributions as other personal pensions, but they hold a much wider range of assets.1House of Commons Library. Self Invested Personal Pension Schemes (SIPPS) Tax-relieved contributions are capped at £60,000 a year for most people, and you can normally start drawing money at 55, rising to 57 in April 2028.2Legislation.gov.uk. Finance Act 2004 – Section 228
How a SIPP Works
A SIPP is a legal structure that holds your investments while qualifying for pension tax advantages. The provider acts as administrator: handling technical filings, claiming basic-rate tax relief from HMRC, and holding custody of the assets.3GOV.UK. Information Requirements for Pension Schemes The provider does not tell you what to invest in. That responsibility sits with you, and so does the risk when investments perform badly.
Because the pension is a separate legal entity, the assets inside it are ring-fenced from the provider’s own finances. If the provider goes out of business, your pension pot does not become part of its debts. That protection is one reason people consolidate old workplace or personal pensions into a single SIPP to see everything in one place.
Who Can Open One
Most UK residents under 75 can open a SIPP, whatever their employment status. Non-earners, including stay-at-home parents and people between jobs, are eligible, though their contribution limits are lower. Children can hold pensions through Junior SIPP arrangements, with a parent or guardian controlling the account until the child turns 18.
Contributions and Tax Relief
The annual allowance for the 2025/26 tax year is £60,000. You can contribute up to 100% of your UK taxable earnings or £3,600, whichever is higher, and receive tax relief on that amount.4GOV.UK. Pension Schemes Rates The £3,600 floor matters mainly for non-earners: someone with no income can still pay in £2,880 and have it topped up to £3,600 once basic-rate tax relief is added.
Relief works “at source.” Your provider claims the basic-rate 20% directly from HMRC and adds it to your pot, so a £800 contribution becomes £1,000 inside the SIPP.5GOV.UK. PTM044100 – Contributions: Tax Relief for Members: Conditions Higher-rate (40%) and additional-rate (45%) taxpayers only get the basic 20% automatically. The extra 20% or 25% is recovered through Self-Assessment. Forgetting this step leaves real money unclaimed every year. Total relief in any tax year cannot exceed the income tax you actually paid that year.6Legislation.gov.uk. Finance Act 2004 – Section 188
There is no legal cap on how much you can physically pay in beyond the annual allowance, but anything above it triggers an annual allowance charge that claws back the tax benefit. Two further wrinkles matter. High earners with adjusted income above £260,000 lose £1 of allowance for every £2 above that threshold, down to a floor of £10,000, provided their threshold income is also above £200,000.7GOV.UK. Work Out Your Reduced (Tapered) Annual Allowance And once you start taking taxable income (not just the tax-free lump sum) from your SIPP, your allowance for future money purchase contributions drops permanently to £10,000 under the Money Purchase Annual Allowance. The timing of your first taxable withdrawal is worth thinking about carefully.
Unused annual allowance can be carried forward from any of the previous three tax years, provided you were a member of a registered pension scheme in each year, even if you paid nothing in.
What You Can Hold Inside a SIPP
The investment range is the main point of difference from a standard personal pension. Common holdings include individual shares listed on recognised exchanges, investment trusts, exchange-traded funds, government bonds, and pooled funds. Where a traditional personal pension might offer 20 or 30 managed funds, a SIPP can hold thousands of individual securities.
Commercial Property
A SIPP can also hold commercial property directly, including offices, warehouses, and retail units. If you run a business, your SIPP can buy your premises and lease them back to the company at market rent. The rent flows into the pension, and the business deducts it as an expense. The property must be genuinely commercial and the rent must reflect the open market; paying under market rate triggers an unauthorised payment charge on the shortfall.8GOV.UK. PTM121000 – Investments: Essential Principles
Your SIPP can also borrow up to 50% of its net asset value to help fund a purchase, which makes commercial property realistic even when the pension pot alone would not cover the price.9GOV.UK. PTM124000 – Investments: Borrowing Rent grows free of income tax inside the SIPP, and any gain on sale is free of capital gains tax.
What You Cannot Hold
HMRC draws a hard line around residential property and tangible moveable property such as fine art, classic cars, wine, and jewellery. These are classified as taxable property under Schedule 29A of the Finance Act 2004.10Legislation.gov.uk. Finance Act 2004 – Schedule 29A Holding them inside a SIPP generates an unauthorised payment, which carries a 40% tax charge, with a further 15% surcharge if the payment exceeds a certain proportion of the fund. The rules are designed to stop pensions being used to fund a lifestyle rather than retirement.
Some assets sit in a grey area. Purpose-built student accommodation and certain care home investments may qualify as commercial rather than residential property, depending on the specifics. For anything outside mainstream shares, bonds, funds, and commercial real estate, professional advice before the purchase is far cheaper than dealing with HMRC afterwards.
Taking Money Out
You can currently access your SIPP from age 55. The minimum age rises to 57 on 6 April 2028, aligning with the planned state pension age increase.11GOV.UK. Increasing Normal Minimum Pension Age There is no obligation to draw anything at 55 or any specific age. Money left inside the wrapper continues growing free of income and capital gains tax.
When you do start withdrawing, you can take up to 25% as a tax-free pension commencement lump sum. The total tax-free amount across all your pensions is capped at £268,275, called the Lump Sum Allowance. Anything above that limit is taxed as income at your marginal rate.
The most common way to take ongoing income is flexi-access drawdown. You designate part or all of your fund as a drawdown fund and withdraw whatever you choose, whenever you choose.12GOV.UK. PTM062730 – Drawdown Pension Rules: Flexi-Access Drawdown Withdrawals beyond the 25% tax-free portion are added to your taxable income for the year. Taking too much in one tax year can push you into a higher band, so spreading withdrawals over several years often saves significant tax. You can also use the SIPP to buy an annuity, converting part or all of the pot into a guaranteed income for life; that appeals to people who want certainty rather than continuing to manage investments into later life.
What Happens on Death
Pensions have historically sat outside the estate for inheritance tax purposes. Where the provider pays lump sum death benefits at its discretion, those payments are generally not subject to IHT.13GOV.UK. Tax on a Private Pension You Inherit Beneficiaries pay income tax on what they receive only if the total lump sums exceed the Lump Sum and Death Benefit Allowance of £1,073,100. Below that, payouts have been tax-free where the member died before 75, or taxed at the beneficiary’s marginal rate where the member died at 75 or older.14GOV.UK. PTM174200 – Transitional Rules: Lump Sum and Death Benefit Allowance
This is changing. The Autumn Budget 2024 announced that from 6 April 2027, most unused pension funds and death benefits will be brought within the scope of inheritance tax. Personal representatives will be responsible for reporting and paying any IHT due, and can instruct the pension provider to withhold up to 50% of the taxable benefits for up to 15 months from the date of death to cover the bill. Funds under £1,000 and continuing annuities are excluded.15GOV.UK. Inheritance Tax: Unused Pension Funds and Death Benefits Anyone using a SIPP as an IHT planning tool should revisit their arrangements well before April 2027.
You tell the provider who you want to receive the pension on death using an expression of wish form. This is not legally binding. The provider keeps discretion over who receives the funds, and that discretion is precisely what has kept payouts outside the estate under the current rules. Update the form after marriage, divorce, a birth, or any other major life event.
Costs and Provider Types
SIPP costs vary sharply depending on the provider and what you plan to hold. The market divides broadly into two tiers.
- Low-cost platform SIPPs suit investors sticking to funds, shares, and ETFs. Platform fees typically run from 0.15% to 0.35% of holdings a year, sometimes with a cap. Some platforms charge a flat monthly fee instead, which works out cheaper for larger pots.
- Full SIPPs support commercial property, unlisted shares, and other non-standard assets. Administration fees are substantially higher, often several hundred pounds a year in fixed charges plus transaction fees for property or alternative investments. The complexity of administering a property purchase inside a pension justifies the difference.
Fees compound over decades. A difference of 0.2% a year in platform charges can erode tens of thousands of pounds from a pension pot over 30 years of accumulation. Compare providers on total annual cost, including platform fees, dealing charges, and any fund-level charges, before committing.
Transferring Existing Pensions In
You can move most existing pensions into a SIPP, including old workplace pensions and other personal pensions. The new SIPP provider contacts the previous administrator to request the transfer, which typically takes two to six weeks. Your money is usually out of the market during that window.
Transferring a defined contribution pension is straightforward and rarely involves giving anything up. Defined benefit (final salary) pensions are a different matter. They provide a guaranteed income for life, and giving that up in exchange for a pot you invest yourself is one of the most consequential financial decisions you can make. If the transfer value is above £30,000, you are legally required to take advice from a regulated financial adviser before the transfer can proceed.16Financial Conduct Authority. Pension Transfer Advice: What to Expect That requirement exists because, in the FCA’s experience, transferring a defined benefit pension is not in most people’s interest.
Regulation and Compensation
SIPP providers are authorised and regulated by the Financial Conduct Authority, which has focused in particular on how providers vet non-standard investments like unregulated funds and overseas property schemes.17Financial Conduct Authority. FCA Expectations for Self-Invested Personal Pension (SIPP) Operators If your provider fails, the Financial Services Compensation Scheme may cover losses depending on the circumstances. FSCS protection does not extend to poor investment performance. The scheme protects against provider failure and against bad advice from a regulated firm, not against the underlying investments falling in value. Choosing your own investments inside a SIPP means owning the consequences when they go wrong.