SIPP – How are they different to normal pensions

What is a SIPP?

A SIPP is self-invested personal pension, which is a special form of personal pension that allows you as the pension scheme member to choose and control the investments within your pension plan. SIPPs are offered by most of the major insurance groups and a range of specialist providers.

What are the key benefits of a SIPP?

The benefits that you can draw from a SIPP and the contributions that can be made are subject to exactly the same rules as any personal pension. The key differentiator is the range of investments available. These vary among providers, with insurance companies typically offering a relatively limited range that will suit most investors, while specialist providers may offer the full range. Typically, investments options include:

• • A very wide range of investment funds.
  • Direct investment in stocks and shares.
  • Cash deposits.
  • Commercial property.

What are the main differences between a normal pension and a SIPP?

A major attraction of SIPPs is that they can invest in commercial property, although not in residential property.

Can I invest in commercial property through a SIPP?

Yes. Commercial property can be let to the member’s company or partnership.

You can even sell a property that you or your business owns to the pension scheme (although this might result in a tax charge on any capital gains). Any sale transaction must use an arms’ length valuation, because there are tax penalties for ‘value shifting’. Similarly, the business must always pay a full commercial rent, which the SIPP or SSAS will receive tax-free.

A SIPP or SSAS can borrow up to 50% of its net assets for property investment (or any other purpose). For example, a SIPP with net assets of £300,000 could borrow £150,000 and spend £450,000 on a commercial property. Often SIPP property purchase is financed by a combination of transfers from previous pension arrangements, new contributions and borrowing.

How does a SIPP fit in with the rest of my investment portfolio?

Most SIPPs include funds and quoted investments, which you may also hold among your other assets. It is important that your investments are integrated as far as possible and are considered together in your financial planning.

A key consideration is ensuring that your investment portfolio balances risk and reward in a way you are comfortable with. This will take account of the time horizon of your investments as well as your individual attitude. This will largely be reflected in asset allocation, which is simply the balance between secure but low-growth investments such as cash deposits and more risky but higher-potential investments such as company shares. You will also need to consider the selection of investment funds, which are likely to make up a large part of your portfolio, and ensure they are suitably diversified and reviewed regularly.

Can I invest in residential property through a SIPP?

In theory, almost any investment can be held in a SIPP but those that are not approved by the HMRC are subject to heavy tax charges that make them unattractive. They are known as taxable investments and include, for example, residential property, works of art, antiques, fine wine and other collectibles.
Interested in learning more about SIPP’s and how they can benefit you? Get in touch today to speak with one of Acumen Financial Partnership expert pension adviser’s.

Tel: 0151 520 4353. Email: info@acumenfinancial.co.uk.