Tax Benefits of a SIPP

All eligible pension contributions automatically qualify for basic-rate tax relief. However, if you’re a higher rate or additional tax payer you could qualify for up to 45% tax relief, depending on your circumstances.

image of different tax bands

Read our case studies to see how tax relief works

The amount of tax relief you will be entitled to will depend on your individual circumstances and, most importantly, whether you are a higher-rate/additional rate taxpayer or not.

SIPP tax relief

All eligible pension contributions automatically qualify for basic-rate tax relief:

  • If you have UK earnings, you can contribute your entire income into your SIPP (subject to a 2014/2015 cap of £40,000). You will qualify for basic-rate tax relief automatically and for higher-rate and additional rate tax relief on that portion of your income that attracts a higher tax rate. 
  • If you do not have any UK earnings you can still pay a net contribution of £2,880 a year into your SIPP and receive basic-rate tax relief of £720, which will bring your overall investment up to £3,600. You can also set up a SIPP for a child or spouse and pay the contributions on their behalf up to these limits.

The amount of tax relief you will be entitled to will depend on your individual circumstances and most importantly, whether you are a higher-rate taxpayer or not. Please note that tax rules can change.

Tax band explanations

An individual with no other allowances would start to pay higher rate tax over an income of £41,865 (calculated as your personal allowance plus the point at which the higher-rate tax band applies). Income received over this figure would be eligible for higher-rate tax relief if you decided to invest in a pension.

£ per year2014/15
Personal allowance (under 65s)£10,000
Basic rate: 20%£0 - £31,865
Higher rate: 40%£31,865 - £150,000
Additional rate: 45%Over £150,001
* Your personal allowance is reduced if your income is above £100,000

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Annual allowance for contributions?

The annual allowance is £40,000 for 2014/2015.

All your pension contributions into our SIPP, up to the annual allowance, qualify for basic-rate tax relief. Any contribution is net of basic rate tax. If you were to invest £800, an additional £200 would be collected automatically from the Inland Revenue on your behalf, added to your account, and be available to invest 6 to 11 weeks later. Higher-rate and additional rate taxpayers making contributions on their own behalf can reclaim a further tax relief through their self-assessment forms.

See our SIPP case studies