SIPP & Group SIPP

Self-Invested Personal Pensions (SIPPs) generally accept regular, monthly, annual or one-off contributions from individuals and from employers and the level of regular contributions can be changed at any time subject to the provider’s minimums.

Contributions will qualify for tax relief at the member’s highest rate of income tax and are paid net of basic rate tax. The pension provider collects the basic tax relief from HM Revenue & Customs (HMRC) up to the maximum limits set by them. Any higher or additional rate relief entitlement can be reclaimed through the member’s annual tax return.

Growth in the value of the pension fund is free from capital gains tax and certain types of dividends paid to the plan are free from income tax. Under normal circumstances, no inheritance tax liability will arise from pension death benefits provided a named beneficiary exists at the date of death.

A SIPP will allow the member to have greater involvement in the running of their pension plan and can usually offer a much wider choice of where to invest their fund value. SIPPs are able to invest in a variety of ways including “connected person transactions” which are allowed provided they occur at “arms-length”. Permitted investments can include:

  • Stocks and shares traded on any recognised stock exchange
  • Futures and options relating to stocks and shares traded on any recognised exchange
  • Units in an authorised unit trust
  • Shares in OEICs
  • Policies of insurance linked to unit-linked or investment funds of an insurance company resident in the UK
  • Traded endowment policies transacted with a person regulated by the FCA
  • Structured deposits and investments
  • Cash deposits in any currency
  • A freehold or leasehold interest in commercial property (including land)

It is possible to invest directly in commercial land or property via a SIPP and the following should be considered:

  • Any rent accumulates tax-free within the scheme and the subsequent disposal of the commercial assets is exempt from capital gains tax
  • The lease must be on commercial terms and the administrator of the SIPP is required to take independent advice on the terms of the lease and the rent payable

A SIPP may only borrow towards the purchase of a freehold or leasehold interest in commercial land or property to be held as an investment of the scheme. The amount borrowed must not exceed 50% of the value of the individual pension assets.

A Group SIPP pools together the pension assets of its members for investment purposes. A typical Group SIPP is likely to consist of the partners or directors of a business who wish to purchase a commercial property. This may be their existing premises, or a new one. A Group SIPP can also be used for other investments.

Each member has their own account within the Group SIPP, which will be individually registered with HMRC, but all assets are combined into a single fund. A member’s initial share in the fund, their investment returns and associated costs will be based on what they pay in.

Individuals can make further contributions or transfer payments, and take funds out as a tax-free lump sum or pensions when they draw benefits. Each individual’s share in the fund will be re-calculated each time this happens. A Group SIPP only operates as a pooled fund, so individual investment is not possible.

If the advantages of pooling together assets are not needed, then other pension arrangements may be more suitable. You should speak to one of our independent financial advisers if you have any other questions, as they will be able to search the whole of the market to find the best possible option for you and your business.