Self-Invested Pension SIPP Rules

A Self-Invested Personal Pension (SIPP) can be a tax-efficient way for business owners, including those running a limited company, to save for retirement.

Here’s how it works:

Key Benefits of a SIPP for a Limited Company

1. Corporation Tax Relief – Employer contributions to a SIPP are tax-deductible business expenses, reducing your corporation tax bill (currently 19% or 25%, depending on profits).
2. No National Insurance (NI) on Contributions – Unlike salary payments, pension contributions from the company avoid employer and employee NI (13.8% and 8-12%, respectively).
3. Tax-Free Growth – Investments inside a SIPP grow free from capital gains and income tax.
4. Flexible Investment Options – SIPPs allow a wide range of investments, including stocks, bonds, ETFs, and even commercial property.
5. Inheritance Planning – SIPPs do not form part of your estate for inheritance tax (IHT) purposes, and beneficiaries can inherit tax-efficiently.

How a Limited Company Can Contribute to a SIPP

• Employer Contributions: The company makes pension contributions directly to your SIPP. There’s no income tax or NI, making it more efficient than drawing dividends or salary.
• Annual Allowance: You can contribute up to £60,000 per year (or up to 100% of salary if making personal contributions), but carry forward rules allow unused allowances from the past three years.
• No Salary Requirement for Employer Contributions: Even if you take most of your income as dividends, your company can still make pension contributions.

🚨 Things to Watch Out For

• Lifetime Allowance Changes: The government scrapped the Lifetime Allowance, but new rules on taxation apply from April 2024 which is £1million.
• Control & Liquidity: Funds in a SIPP are locked until age 55 (rising to 57 in 2028).
• HMRC Rules: Contributions must be ‘wholly and exclusively for the purpose of trade’ to qualify for tax relief.

🔥 Best Strategy for Limited Company Owners

Plan Withdrawals – After 55, you can withdraw 25% tax-free, with the rest taxed as income.

Use Employer Contributions to maximize tax efficiency.

Consider Diversification – Invest in a mix of assets, potentially even commercial property for your business.