SIPP tax benefits

Investing in a pension is a tax efficient way to save for your retirement. Not only do your investments grow free from income tax and capital gains tax, you are also eligible for tax relief up to 45%.

How does tax relief work?

Effectively, whenever you contribute into a pension, the Government will give you tax relief calculated on your gross contributions based on the tax band you are in. Each tax band will get a different percentage but it is a great boost to help you save for the future.

SIPP Basic Tax Rate

Non taxpayer:

You are entitled to 20% tax relief on £3,600. Therefore, you can contribute up to £2,880 into the Willis Owen SIPP.

Basic rate taxpayer:

You are entitled to 20% tax relief. The Willis Owen SIPP will claim 20% and add this to your pension pot.

Higher rate taxpayer:

You are entitled to 40% tax relief. The Willis Owen SIPP will claim 20% and add this to your pension pot but you will need to claim the further 20% through your tax return.

Please note that the tax relief claimed from your tax return won't be automatically added to your SIPP.

Additional rate taxpayer:

You are entitled to 45% tax relief. The Willis Owen SIPP will claim 20% and add this to your pension pot but you will need to claim the further 25% through your tax return.

Please note that the tax relief claimed from your tax return won't be automatically added to your SIPP.

Examples of how tax relief is applicable:

Total gross contribution in your SIPP
Your
net
contribution
Tax relief
added to your pension pot
Tax relief
from your
tax return
Non taxpayer
£3,600*
£2,880
£720
£0
Basic rate
£10,000
£8,000
£2,000
£0
Higher rate
£10,000
£8,000
£2,000
£2,000
Additional
£10,000
£8,000
£2,000
£2,500

* this is the maximum contribution for non-earners and those who earn less than £3,600.

Annual allowance:

There is a limit to how much tax relief you are entitled to. It is applicable to contributions up to £40,000 or 100% of your earnings - whichever is lower. So if you earn £30,000 the maximum tax relief you are entitled to is on £30,000.

Tapered annual allowance

However, if you are an additional rate taxpayer, your annual allowance can be tapered down to £10,000. If you earn over a threshold income of £110,000 and an adjusted income of £150,000 the relief will be reduced by £1 for every £2 of adjusted income above £150,000. Therefore, if you earn over £210,000 the maximum you can contribute is £10,000.

Three year carry forward rule:

One special feature with pensions is the three year carry-forward rules. This rule allows you to carry the last 3 tax years' annual allowance into the current tax year.

This is a useful feature for people who were unable to use up their annual allowances in the past but have the ability to do so for the current tax year. You must use this year's allowance before using the carry forward rule.

If you are thinking of using this feature, you can check if you have any unused annual allowance that you can carry forward here.

Tax rules apply at the time of writing and will depend on your personal circumstances. We suggest you seek advice from a tax adviser if you are not sure on your tax situation.