What is
a SIPP & How Does it Work in Britain?
What is a SIPP & How Does it Work in Britain?
A Self-Invested Personal Pension Scheme (SIPP) is in essence a trust
-
The member of a SIPP is a beneficiary as well as being a trustee
has a much greater say in how and where
his pension contributions are invested. Of course, as with all trusts
there are 'Rules & Regulations' on what are deemed suitable 'investments',
rules on who may be the trustees of the SIPP trust,
rules on who may benefit and when and rules about
how much can be invested. But the basic principle is to
involve people more in securing their own future.
The Tax Benefits
Once a SIPP has been established the benefits
to the 40% Personal
Income Tax Payer are considerable. All personal contributions warrant
a full tax write off! In other words, for every pound invested in
your SIPP the government through Her Majesty's Customs
and Excise (HMRC) will have contributed 40p!!
So if you pay in £1,000 HMRC add £282. And if you are
a
40% taxpayer you can claim a further £230 of income tax relief.
So at a cost of £770 your pension fund has received £1,282.
Your employer where appropriate may also pay
into your SIPP -
These contributions will generally be allowable as a business
expense and will not result in the SIPP member being taxed
as a benefit in kind. Nor will there be any National Insurance
Contributions to pay by either employer or SIPP member.
A key source of potential SIPP input is transfers from other schemes
-
an area which in particular requires specialist advice.
Further investments made by a SIPP are exempt
from Capital Gains
Tax (CGT). And your fund receives most forms of UK income free from
tax -
The only exception relating to dividends on UK equities.
And when the time comes to take benefit up to 25% of the fund
may be enjoyed as a tax-free lump sum. The balance of the
fund may provide an income without you ever having to
buy a pension annuity.
'A' Day -6 April 2006
Come 6 April 2006 many of the 'historic' constraints on what a SIPP
cannot invest in will be removed. From this date people will be able
to have
their SIPP invest in a wide variety of assets so long as the prime
intention is to accumulate a fund for the purposes of providing
benefits on retirement or death. Certainly, it is clear that as part
of the pensions
simplification process SIPPs will be able to invest in commercial
property
in the United Kingdom and elsewhere.
The extension of this relative investment freedom to residential property
and other assets that the SIPP member might use for personal purposes
was effectively removed by Chancellor Gordon Brown before
it was even introduced. But there remains the possibility that restrictive
access to the residential property market through a SIPP will remain
possible but as at the beginning of March 2006 we still await an announcement
on what may or may not be possible.
However there are many more fascinating elements
of Pensions simplification
in the UK. Including more benefit options and the abolition of the
compulsion to buy an annuity by age 75.
The remaining fund on death may then be available to other nominated
individuals opening up the possibility of the intergenerational
transfer of pension fund assets.
On this subject the remaining uncertainty relates to the UK Inheritance
treatment.
SIPP provided by leading UK Specialist Premier Financial Solutions
(UK) Limited
Legal structures provided by the London based
SCF Group owned
by UK Lawyers & Accountants and Spanish Lawyers
For complete informations visit www.premierfinancialsolutions.co.uk
and / or www.scfgroup.com
Contact Stephen Ward at sward@premierfinancialsolutions.co.uk
