SIPP / Personal Pension
A self-invested personal pension offering income tax relief on contributions and tax-free growth. One of the most powerful long-term tax planning tools available in the UK.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
You open a SIPP and make contributions from personal income. Basic rate relief (20%) is added automatically. Higher/additional rate taxpayers claim extra via Self Assessment. You choose your investments. From age 57 you take 25% tax-free and draw the rest as taxable income.
Tax Treatment
Contributions receive income tax relief at your marginal rate. Growth is free of income tax and CGT. 25% can be taken tax-free from age 55 (57 from 6 April 2028). The remaining 75% is taxed as income when drawn.
Tax Advantages
- Income tax relief at your marginal rate (20%, 40%, or 45%)
- Investment growth is free of income tax and CGT
- 25% tax-free lump sum
- Carry forward unused allowance from previous 3 years
- Outside your estate for IHT until 5 April 2027; due to be included from 6 April 2027
Who Is This Suitable For?
Anyone building retirement savings. Company directors should consider employer contributions instead for even greater tax efficiency.
Worked Example: £8,000 paid in, £10,000 invested, drawn after 5% growth
- 1You pay £8,000 into a SIPP; the provider claims basic-rate relief and £10,000 is credited to your pot, which counts towards your £60,000 annual allowance.
- 2Higher and additional-rate taxpayers claim further relief on the £10,000 gross contribution through Self Assessment.
- 3Left invested for 20 years at 5% a year, it grows to about £26,533 with no tax on the growth.
- 4From the minimum pension age you could take 25% (about £6,633) tax-free and draw the remaining £19,900 as taxable income over time.
Result: Relief on the way in and tax-free growth make the SIPP hard to beat for money not needed before your late fifties.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- You choose the investments, from index funds to individual shares and commercial property.
- Unused allowance from the previous three tax years can be carried forward for a large one-off contribution.
- The tax-free lump sum is 25% of the pot, up to the £268,275 lump sum allowance.
Drawbacks
- Money is locked until the minimum pension age, normally not before 55 and due to rise later this decade.
- Relief is capped by relevant UK earnings, and dividends do not count, so a director paid mostly in dividends gets relief on only a small contribution.
- From 6 April 2027 most unused pension funds are due to fall within inheritance tax, weakening the SIPP as a way to pass wealth on.
- Higher-rate relief is not automatic: unclaimed on your tax return, it is simply lost.
Notes for Limited Company Owners
For a director, personal SIPP contributions are usually the second-best route: relief is limited to your salary, whereas employer contributions are not tied to salary at all. A common pattern is a company contribution for the bulk, with a small personal top-up to use any remaining allowance.
Common Mistakes
- Paying in more than 100% of earnings, which leaves the excess without relief and often has to be refunded.
- Triggering the money purchase annual allowance by flexibly accessing a pension, which sharply cuts future contributions.
- Leaving a SIPP in cash for years after transferring in.
Who Should Avoid It
Anyone who may need the money before their mid-fifties, and high earners with adjusted income over £260,000 and threshold income over £200,000, whose tapered annual allowance makes personal contributions far less attractive.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
SIPP vs company pension?
Company pension contributions are more efficient as they also avoid NI. Use company contributions first, then personal SIPP if you have remaining allowance.
Can I access my pension before 55?
Generally no (and the minimum age rises to 57 from 6 April 2028). Be wary of schemes claiming to unlock pensions early — these are usually scams with up to 55% tax charges.
What happens on death?
Before 75: beneficiaries inherit tax-free. After 75: they pay income tax at their marginal rate. Outside the estate for IHT until 5 April 2027; unused funds are due to be included from 6 April 2027.