Talk to us about one of the most tax-efficient
ways of saving for your retirement

Retirement may be a long way off for you at the moment, but that doesnít mean you should forget about it. The sooner you start to plan for the future, the easier it is to build up the kind of money you need to enjoy the life you want.

There is a plethora of different ways to save for your future, including pensions, investments and property, but if you want to be in total control of your retirement planning and have access to a wide choice of investment options, a SIPP (Self-Invested Personal Pension) could be the right solution for you. SIPPs provide sophisticated investors with a tax-efficient way to save for retirement and you receive tax relief on your personal savings into your SIPP at the highest rate of tax you pay. The investments within the SIPP will grow free of capital gains tax and any income tax.

Tax facts
For dividend income on UK equities, if you’re a basic rate taxpayer you’re deemed to have paid tax at 10 per cent on the dividend income whether inside or outside the SIPP. This ‘tax credit’ cannot be refunded for SIPP investments. If you’re a higher rate taxpayer you’d normally
pay tax on dividend income at 32.5 per cent or
37.5 per cent. Inside a SIPP you won’t get back the 10 per cent dividend tax credit, but you won’t have to pay any additional tax.

Limit on contributions
You can receive tax relief on your personal contributions up to 100 per cent of your earnings. There is a limit on the contributions you can pay and receive tax relief on – this is called the Annual Allowance, which is currently £50,000 per year (but is reducing to £40,000 from 6 April 2014), although you can Carry Forward any unused allowance from the previous three tax years.

Valuable tax benefits that can help you make the most of your retirement savings:

Automatically receive basic rate tax relief on your contributions – if you want to pay £10,000 you only need to write a cheque for £8,000. The Pension Provider will claim £2,000 from the taxman on your behalf and add that to your pension.

Claim back more tax relief if you are a higher rate or additional rate taxpayer – a 40 per cent taxpayer can claim an additional £2,000 back on a £10,000 contribution from HM Revenue & Customs through Self Assessment.

Receive tax relief even if you don’t pay tax – even if you are a non-taxpayer, you can claim full basic rate tax relief on your personal contributions, up to £3,600 gross per tax year. This also applies to Junior SIPP accounts where the child receives 20 per cent basic rate tax relief.

Tax breaks when you reach retirement – take up to 25 per cent of your pension fund as a tax-free lump sum, which you can invest or spend as you choose (this option is only available from the age of 55). Your dependants can have your total pension account free of any tax as a lump sum if you were to die before taking any benefits.

Investment mix
In addition to the tax benefits, you have more flexibility and control over your savings and where your money

is invested. You can choose investments that suit your personal needs and vary your investment mix as your circumstances change.

Options at retirement
When you retire, you can use the money you’ve built up in your SIPP to buy an annuity, which will provide you with an income for life. Alternatively, you can take ‘income drawdown’, which gives you the flexibility of taking an income from your SIPP while retaining control over your investments. You also have the peace of mind that, if the worst happens, your dependants could still receive benefits from your SIPP savings, but this may be taxed on death at a current rate of 55 per cent. Charges for income drawdown are higher than for an annuity. The investment funds may be depleted either through poor performance or withdrawals. Also, high levels of income may not be sustainable and annuity rates may be worse in the future.

Currently you may only accumulate £1.5 million within all your registered pension schemes in your lifetime without incurring an additional tax charge. This is called the Lifetime Allowance. Any excess will be taxed and the tax rate will depend on whether you take this excess as a lump sum or as income. You may be able to accumulate more than this amount if you have successfully applied for transitional protection.

Investments available can vary in their level of risk. As with any investment the value of your investment can go down as well as up and may be worth less than was paid in. Investors may lose some or all of their capital. Some investments (such as property) may take longer to sell. The valuation of property is generally a matter of the valuer’s opinion rather than fact. Changes in exchange rates and interest rates could affect the value of your investment.