What is a Self-Invested Personal Pension(SIPP)?

Any individual eligible for an ordinary personal pension can have a self invested personal pension if they wish to manage their own pension fund.

In particular, SIPP's will appeal to:

• Those who already actively manage a share portfolio
• The self-employed who have sums to invest on a regular basis.
• Those who have benefits to transfer from previous pension schemes.
• Partnerships, such as doctors and dentists, who are interested in purchasing new premises.

Allowable contributions to a SIPP or Personal Pension

From April 2006 you can save as much as you want into any pension scheme. The rules for claiming tax relief on your pension contributions are also more flexible, though tax charges will apply if you go above certain new allowances.

Tax relief on pension contributions

• each year you’ll be able to get tax relief on your pension contributions up to 100 per cent of your earnings subject to an ‘annual allowance’ above which tax will be charged
• if you have little or no earnings you will still get tax relief up to a maximum annual contribution of £3,600

Contributions above the Annual allowance

• the annual allowance for the tax year 2008-09 will be £235,000 and will rise each year until it reaches £255,000 in 2010; thereafter the amount will be reviewed every five years
• if the annual allowance is exceeded you’ll need to declare the extra pension savings and pay the annual allowance charge through Self Assessment
  · the annual allowance charge will not apply in the year you take all your benefits

‘Lifetime Allowance’

• from April 2006, you will have a ‘lifetime allowance’ against which the total value of the benefits built up in your pension fund (including investment growth) will be tested
• the value of any pensions savings above the lifetime allowance will be subject to a ‘lifetime allowance charge’
• the lifetime allowance for the tax year 2008-09 will be £1.65m and will rise each year until it reaches £1.8m in 2010; thereafter it will be reviewed every five years
• if you take benefits above your lifetime allowance as a pension, the lifetime allowance charge on the excess amount will be 25 per cent
• if you take benefits above your lifetime allowance as a lump sum, the lifetime allowance charge on the excess amount will be 55 per cent
• the lifetime allowance ‘test’ will take place when you start drawing your benefits or when you reach age 75

Both self employed and employees pay contributions net of basic rate tax and, if you are a higher rate taxpayer, higher rate tax relief can be obtained through either self-assessment, or through an amendment to a PAYE code.

Permitted Investments

• Stocks and shares traded on any recognised stock exchange in the world, including AIM.
• Gilts (fixed interest loans to the government)
• Sterling deposits with any bank anywhere in the world
• Quoted debentures, loan stocks ( Loans to quoted companies)
• Traded futures and options, on a recognised exchange (derivatives)
• Building society permanent interest bearing shares (PIBS)

Unit trusts/investment trusts/collective investments

• Any unit trust or investment trust
• Exempt unauthorised unit trusts
• Offshore funds (SIB recognised)
• Investment policies or unit funds of any UK insurance company, or an insurance company within the EU with an office in the UK.

Property

• Commercial Property in or outside the UK (whether freehold or leasehold) purchased from an unconnected party
• Land in or outside the UK including development land, farmland and forestry.

What is a Small Self Administered Scheme (SSAS)?

Introduced in the mid-seventies exclusively for the use of Directors and key staff of Limited Companies.

• Special status as the SSAS is structured under trust and pension legislation that offers opportunities for corporate and personal planning.
• Funds may be transferred from the sponsoring company to the SSAS free of tax liability.
• Funds may be invested within the SSAS with any interest and growth enjoying a tax advantageous environment.
• Contribution limits apply as per SIPP funding.

A SSAS may help the Company in the following ways:

Cash flow planning

• Financing of business growth
• Increasing profitability
• Tax reduction
• Recruitment and Retention
• Exit Route Planning

Common uses of a SSAS

1. Build up Capital
   The SSAS offers tremendous opportunities to build up capital outside the Company. Moneys may be passed from the sponsoring company to the SSAS free of any tax liability. Growth of funds within the SSAS will enjoy a tax advantageous environment. Funds within the SSAS may be invested in a wide range of areas.
2. Loan Back
   Funds within the SSAS may be loaned back to the sponsoring company for the purchase of allowable Company assets.
3. Commercial Property purchase
   A commercial property may be purchased by the SSAS fund. This has the result of shielding the asset from Capital Gains Tax. Rental income is received by the SSAS free of all tax. The sponsoring company may make investments to the SSAS to receive tax relief on capital and interest repayments. This can enhance Company cash flow.
4. Retirement Planning
   The SSAS can be used as a more effective tool for retirement planning than Personal Pension Plans. This is due to the greater funding opportunities and wider investment powers, such as the ability to invest in private company shares, including those of the sponsoring company.
5. Succession planning
   A SSAS may be used to purchase shares from an existing shareholder exiting the Company.
6. Inheritance tax planning
   The SSAS fund may pass tax free to any nominated beneficiary prior to member's retirement.
7. Purchase of sponsoring company shares
   Shares of the sponsoring company may be purchased by the SSAS. This saves tax on dividends and disposal of shares.
8. Financing
   A SSAS may independently borrow money and lend to the sponsoring company.

For further information: