What is a SIPP and how does the tax relief work?

Full answer

A SIPP is a type of personal pension that gives you control over how your retirement savings are invested, typically across funds, shares, investment trusts and similar assets. It works like other personal pensions for tax: contributions receive tax relief and the fund grows free of UK income tax and capital gains tax. Tax relief is added at the basic rate automatically. If you pay GBP 8,000 into a SIPP, the provider reclaims GBP 2,000, making a gross contribution of GBP 10,000. Higher-rate taxpayers claim a further 20% (GBP 2,000 on that GBP 10,000) and additional-rate taxpayers a further 25% through self assessment, so the net cost of a GBP 10,000 contribution can be GBP 6,000 or GBP 5,500 respectively. Contributions count towards the GBP 60,000 annual allowance for 2026/27, and relief is limited to 100% of your relevant UK earnings (or GBP 3,600 gross if you have little or no earnings). Carry forward of unused allowance from the previous three years may allow larger one-off contributions. From age 55 (57 from 2028) you can normally take up to 25% of the SIPP tax free, with the balance available through drawdown or to buy an annuity, all taxed as income when withdrawn. SIPPs sit outside your ISA allowance, so you can use both: the ISA allowance is GBP 20,000 for 2026/27. Use the pension calculator to see the gross contribution and tax relief, and the SIPP calculator to project growth. Charges and investment risk vary by provider. For contribution and allowance rules, check gov.uk.

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