What is a Self-Invested Personal Pension?
Self-Invested Personal Pensions (SIPPs) are a form of personal pension where the holder has control over the investments in the scheme. The important facts about SIPPs are:
• SIPPs can hold a wider range of investments than a conventional personal pension including commercial property and land.
• They require active management from the investor (or from a financial adviser appointed by the investor).
• They are generally only suitable for the more sophisticated investor.
• They are generally only suitable for those with larger amounts to invest.
• The associated fees are often higher than with a conventional personal pension.
What Investments can be held in a SIPP? Permitted investments include:
• Stocks and Shares
• Investment Trusts
• Gilts and Bonds
• Open Ended Investment Companies (OEICs)
• Exchange Traded Funds (ETFs)
• Bank Deposit Accounts
• Commercial Property
• Offshore Funds
Investment Risk
As with all investments, SIPPs involve risk. Some non-standard investments may carry a higher level of risk.
In addition, some investment types are classed as “unregulated” and will not qualify for the normal compensation routes if anything goes wrong.
It is critical that you understand and are comfortable with the level of risk being taken in your SIPP.
Your Smith & Pinching SIPP adviser will evaluate your risk profile and ensure that the level of risk within your SIPP portfolio is aligned with this.
The inverted pyramid gives you an idea of some of the different types of investment and where they sit in terms of risk.
Those with the least degree of risk are at the point of the pyramid with those with greater risk are at the top.
Risk Pyramid
Commercial Property and Land in a SIPP
The possibility of including commercial property or land in a pension scheme is an attractive feature of self-invested schemes. A SIPP can also hold agricultural land, but this normally excludes residential accommodation on the land.
As a general rule of thumb, investment in residential property is not permitted but there are certain exceptions to this laid down by HMRC such as student halls of residence and homes for the disabled or elderly. It is also possible to invest in property while it is being converted from commercial use to residential or from residential to commercial provided it is not suitable for use as a dwelling while it is held in the SIPP.
SIPP Property Ownership
The property can be held either by an individual’s SIPP or by a group of SIPPs. Where a group of SIPPs are involved (known as a syndicated arrangement) each individual SIPP in the group can sell or increase its share in the property and can take out borrowing to help fund the purchase (see next page).
The legal owner of properties purchased by a SIPP will be the corporate trustee of the scheme. Where the property is held by a group of SIPPs in a syndicated arrangement, a Declaration of Trust document is normally required to define the proportion of the property owned by each member’s SIPP.
Borrowing to Fund the Purchase
The SIPP can take out a mortgage to fund the purchase of a property or land up to a limit of 50% of the net value of the scheme assets when the mortgage is taken out.
SIPP Property Purchases
• Purchase from a scheme member or a “connected party” of the member’s employer:
- Essential to demonstrate that a proper market value has been paid for the property.
- If the vendor makes a gain on the sale to the SIPP, Capital Gains Tax (CGT) may be payable.
- The SIPP may incur a Stamp Duty Land Tax (SDLT) liability on the purchase.
• Transfer from another registered pension scheme
- Treated as an “in specie” transfer.
- No SDLT or CGT payable.
• Conveyancing:
- Normal checks and searches are required including a desktop environmental survey.
- You will need to instruct a solicitor to draft the necessary documentation to allow title to pass to the scheme trustees.
- SIPP providers have a panel of solicitors available to assist with the purchase.
- Members can appoint their own solicitors, but a panel solicitor will need to carry out a further check on behalf of the schemes.
Ongoing Responsibilities with SIPP Property
• If the property is to be rented out, the SIPP must draw up appropriate lease documents and charge a market value rate for the lease.
• The SIPP member is normally responsible for ensuring that the property has suitable insurance.
• Members may feel they would like to appoint a property manager to oversee the property. This is not mandatory but service charges by a manager can potentially be covered by the pension scheme.
Tax Treatment - Income and Disposal of SIPP Property
• Income from property held in a SIPP is exempt from income tax and any gains made when the property is sold will be free of CGT.
• If the member dies and the property is sold or transferred directly from the SIPP to the member’s beneficiaries, its value is normally exempt from Inheritance Tax. However this will change in 2027.
Ongoing contributions to your SIPP
Contributions to your SIPP can take the form of either earned or non-earned income/capital but your total contribution should not exceed your earned income. You will normally receive tax relief on qualifying contributions.
As with other pension saving schemes, the total amount you can put into your SIPP is limited by the standard Annual Allowance for pensions which currently stands at £60,000 (2025/26) providing you haven’t started taking flexible withdrawals from the scheme. Once you start taking flexible withdrawals from your SIPP beyond the 25% tax-free option, your Annual Allowance drops to £10,000.
From the 2024/25 tax year, the Lifetime Allowance was abolished which originally limited the amount you could put into a pension without incurring a tax charge when the scheme was crystallised. However, there is still a limit on the maximum tax free cash you can withdraw.
You can transfer benefits from other pension schemes to your SIPP. Transfers will not count towards your Annual Allowance.
It is critical to get advice before transferring pension benefits between schemes as there is a danger you might lose valuable safeguarded benefits or incur unexpected future responsibilities and costs.
Growth in your SIPP
Your SIPP has the potential to grow through investment gains and other gains such as rents from commercial property. However, it is possible that the investment assets in your SIPP may lose value in adverse market conditions.
Accessing your SIPP Investments
Again, your SIPP is governed by the same rules as other pension investments in that you can’t access the SIPP until you have passed the minimum retirement age (currently age 55 rising to 57 from April 2028). Until that point, all purchases, proceeds and growth made by the SIPP must remain in the SIPP.
Turning pension assets in a SIPP into income for retirement can be challenging, particularly if the SIPP holds commercial property or other non-liquid assets. Careful planning is required to ensure that retirement benefits can be delivered when needed.
The value of your investments can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
Pension Death Benefits and SIPPs
Assets held in your SIPP can be passed on to nominated beneficiaries on your death in the same way as other pension benefits. If you die before age 75, benefits from your pension can be passed on free of tax if it is payable as a lump sum up to the amount of your Lump Sum and Death Benefit Allowance with any excess taxable; after age 75 benefits are taxed at the beneficiaries’ normal rate of tax.
Why Smith & Pinching for your SIPP?
