What is a SIPP
A Self-Invested Personal Pension (SIPP) is an approved personal pension scheme, which allows you to make your own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC).
SIPPs can also be viewed as a consolidator wrapper of your pensions.
SIPPs are a type of Personal Pension Plan. Another variation of this type of pension is a Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax “wrappers”, allowing tax rebates on contributions in exchange for limits on accessibility.
The HMRC rules allow for a bigger range of investments to be held than the Personal Pension Plan, mainly equities and property. Rules for contributions, benefit withdrawal and so on are the same as for other personal pension schemes.
Investors may make choices about what assets are bought, leased or sold, and decide when those assets are acquired or disposed of, subject to the agreement of the SIPP trustees (usually the SIPP provider).
Most assets are permitted by HMRC, however there are some that will be subject to a tax charge.
The assets that are not subject to a tax charge are:
Stocks and shares listed on a recognised exchange
Futures and options traded on a recognised futures exchange
Authorised UK unit trusts and open-ended investment companies and other UCITS funds
Unauthorised unit trusts that do not invest in residential property
Unlisted shares
Investment trusts subject to FCA regulation
Unitised insurance funds from EU insurers and IPAs
Deposits and deposit interests
Commercial property (including hotel rooms)
Ground rents (as long as they do not contain any element of residential property)
Traded endowments policies
Derivatives products such as a Contract for difference (CFD)
Gold bullion, which is specifically allowed for in legislation, provided it is “investment grade”
Investments currently permitted by primary legislation but subsequently made subject to heavy tax penalties (and therefore normally not allowed by SIPP providers) include:
Any item of tangible moveable property (whose market value does not exceed £6,000) – subject to further conditions on use of property
Exotic assets such as vintage cars, wine, stamps, and art
Residential property
Advantages of a SIPP pension
• Unlike a normal personal pension, which is invested in traditional arrangements, SIPPs can be invested in a wider range, such as shares, gilts, investment trusts, unit trusts, commercial property and insurance companies
• Monthly contributions can be low
• If investments are performing badly you can move funds to another investment
• There are tax advantages from investment in commercial property for example, with rental being received tax free to the fund or if a property is sold on
Disadvantages of a SIPP pensions
• You cannot draw on a SIPP pension before age 55 (not necessarily a disadvantage)
• You do need to spend time managing your investments (can be seen as a good thing)
• Where investment is made in commercial property, you may have periods without rental income, and in some cases, the pension fund may need to sell on the property when the market is not at its best, so you need to be careful
• Because of a greater flexibility, more transactions and moving investments around, the administration costs tend to be higher than those of a normal pension fund
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