Who is eligible to make a contribution to a SIPP?
Anyone can contribute to a SIPP, but you can claim tax relief on personal contributions only if you are aged less than 75 and satisfy one of the following conditions:
- You have earnings chargeable to UK income tax, meaning that you have taxable earnings from employment (not dividends) or self- employment
- You are resident in the UK at some time during the tax year in which you make the contribution
Can my employer make contributions?
Yes. Contributions should be allowable for corporation tax relief if your employer’s Inspector of Taxes is satisfied that such contributions are ‘wholly and exclusively’ for business purposes.
For tax purposes, employer contributions are made on a gross basis.
What is the Annual Allowance?
Each tax year, the Annual Allowance limits the amount of tax privileges you can obtain on contributions to your pension arrangements. The Annual Allowance applies to all pension savings through registered pension schemes that you or your employer make in any tax year. It is therefore important that you are fully aware of the contributions your employer plans to make to your pension arrangements.
If the total contributions exceed the Annual Allowance for the tax year, then you may be subject to the Annual Allowance Charge. The Annual Allowance Charge is currently 40% and will be applied to the excess of the total contributions (and benefit accruals under any defined benefit pension schemes) over the Annual Allowance. It is payable through self-assessment.
The Annual Allowance Charge does not apply to contributions (and benefit accruals) in the tax year in which you take all your benefits or in which you die.
The Annual Allowance for the five tax years from 6 April 2006 is as follows:
Tax Year & Annual Allowance
2006/07 annual allowance: £215,000
2007/08 annual allowance: £225,000
2008/09 annual allowance: £235,000
2009/10 annual allowance: £245,000
2010/11 annual allowance: £255,000
After the 2010/11 tax year, future increases in the Annual Allowance will be announced each year by the Government.
Can I transfer from other pension schemes to the SIPP?
Yes. Strategic Asset Managers (UK) Ltd will be pleased to advise you on the merits of any proposed transfer that is specific to your circumstances. When considering transferring entitlements to the SIPP, you should take into account the entitlements that you may be giving up and also the cost and charges that you may incur as a consequence of the transfer.
If you have contracted-out of the State Second Pension under other pension schemes then it is not currently possible to transfer any part of those entitlements that relate to contracting-out to the SIPP. This part of the transfer value must remain in the existing scheme or be paid to another pension scheme that has the ability to accept it.
Is there a maximum size of pension fund?
Yes. This is known as the Lifetime Allowance which is an overall ceiling on the amount of tax-privileged pension savings that you can build up. The Lifetime Allowance applies to all your pension entitlements from registered pension schemes. The Lifetime Allowance for the five tax years from 6 April 2006 is as follows.
Tax Year & Lifetime Allowance
2006/07 lifetime allowance: £1.50M
2007/08 lifetime allowance: £1.60M
2008/09 lifetime allowance: £1.65M
2009/10 lifetime allowance: £1.75M
2010/11 lifetime allowance: £1.80M
After the 2010/11 tax year, future increases in the Lifetime Allowance will be announced each year.
If your total pension funds exceed the Lifetime Allowance when you decide to take your benefits, then the excess over the Lifetime Allowance will be subject to the Lifetime Allowance Charge, as explained below.
The excess can be taken as either of the following:
- As a lump sum, in which case it will be taxed at the rate of 55%; or
- As annual income, in which case it will be subject to an initial tax charge of 25% and the income taken from the remaining fund will be subject to income tax at your marginal rate of income tax when it is taken
If the total value of your existing pension funds as at 5 April 2006 was in excess of the Lifetime Allowance, or is expected to grow to be in excess of the Lifetime Allowance when you take your benefits, then it may be possible to protect your funds from the Lifetime Allowance Charge by registering your pension funds for transitional protection with HM Revenue & Customs by 5 April 2009.
The transitional protection arrangements in respect of the Lifetime Allowance are complex and you should speak to Strategic Asset Managers (UK) Ltd or your professional advisers if you think that you may be affected by the Lifetime Allowance.
Please retain this document for reference purposes. It is issued by Cornhill Asset Management Ltd and Strategic Asset Managers (UK) Ltd and is based on our understanding of how the current legislation applies as at 1 January 2007. There may be subsequent alterations in response to legislative and regulatory changes. This document is for information purposes only and does not constitute advice. Strategic Asset Managers (UK) Ltd is an appointed representative of Strategic Asset Managers Ltd. Cornhill Asset Management Ltd and Strategic Asset Managers Ltd are Authorised and Regulated by the Financial Services Authority, and Cornhill Asset Management Ltd is an introducer to Strategic Asset Managers (UK) Ltd.