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A tax advantaged way to save

The main reason many people save for their retirement using pensions is because of the tax advantages of investing this way.


Important information

Please remember the value of your investments and any income from them can go down as well as up. The value of your fund may be less than you paid in.

Before you choose a SIPP, make sure you understand its aims and risks, if you are unsure as to the suitabaility of any particular investments, you should seek professional financial advice. Alliance Trust does not give advice. A SIPP requires active management and investment expertise. You should make sure you review your investments regularly. You normally cannot take an income from your pension until age 55.

Laws and tax rules may change in the future without notice. The information here is our understanding in April 2016. This information takes no account of your personal circumstances which may have an impact on tax treatment.

Tax relief on the way in

The government incentivise pension savings by giving tax relief to most people when they pay into their pension. You can think of it as the government topping up the money you pay in out of your own pocket. And almost anyone can benefit. Here’s how.

People who don’t pay tax

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Including tax relief, you can still pay in up to £3,600 each year to a pension. So you actually pay £2,880 and, with basic rate tax relief at 20%, HMRC tops this up with £720.

Basic rate tax payers

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If you pay in £8,000 from your own pocket, with basic rate tax relief at 20% HMRC tops this up with £2,000.

Higher rate tax payers

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If you pay in £8,000 from your own pocket, with tax relief at 20% HMRC tops this up with £2,000. And because you are a higher rate tax payer you can then claim back up to another £2,000 through your self-assessment tax return (as long as you’ve paid that much tax at the higher rate).

Additional rate tax payers

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If you pay in £8,000 from your own pocket, with tax relief at 20% HMRC tops this up with £2,000. And because you are an additional rate tax payer you can then claim back up to another £2,500 through your self assessment tax return (as long as you’ve paid that much tax at the additional rate).


Relevant earnings

You can contribute up to £40,000 gross (£32,000 net i.e. before tax relief is added) or 100% of your relevant earnings (whichever figure is lower). If you are a non earner you can still pay up to £3,600 gross (£2,880 net i.e. before tax relief is added).

It is important that you understand the definition of ‘relevant earnings’, please see below table.


Sources that count towards relevant UK earnings Sources that DON’T count towards relevant UK earnings
profits from self-employment derived from a trade, profession or vocation (whether as an individual or as a partner acting personally) dividends
employment income (salary or wages, bonuses, overtime, commission) that is chargeable to tax pensions
benefits in kind that are chargeable   to tax (this applies to directors, and to employees earning £8,500 or more a   year) savings
any part of a redundancy payment above   £30,000 (in other words, the part that is chargeable to tax) property (such as rent)
statutory sick pay and statutory   maternity pay provided by the employer and chargeable to tax any part of a redundancy payment that’s not chargeable to tax (the first £30,000 of such a payment)
permanent health insurance payments paid by the employer while the individual is still in the employment all State benefits
profit-related pay (including the part which is not taxable) benefits in kind for non-directors earning less than £8,500 a year
patent rights treated as earned income statutory sick pay and statutory maternity pay paid by the DWP
salary paid by way of Government securities permanent health insurance payments paid directly to the individual by the insurance company after employment has ceasedn
remuneration in the form of units in an authorised unit earnings from international organisations with no income tax liability, including the United Nations and the World Health Organisationn
general earnings from overseas Crown employment which are subject to tax employer payments to employer-financed retirement benefit schemes (these are non-registered pension schemes) income from patents which have been purchased
partnership share money deducted from an employee’s salary in accordance with a partnership share agreement approved share options which are not taxable
income arising from certain furnished holiday lettings businesses
approved/unapproved share options which are taxable

Remember, there are limits

There are limits to how much you can pay into pensions each year and still claim tax relief (annual allowance) and to how much you can save into pensions in your lifetime without paying a tax charge (lifetime allowance).


Understanding Your limits

Related documents

Visit our dedicated SIPP literature page.
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It’s not just about the tax relief

  • Pension savings are exempt from Capital Gains Tax. Considering you could be investing for more than 30 years that’s an important tax advantage.

  • Everyone has to pay tax at 10% on any dividends they receive, but in a pension higher rate or additional rate tax payers don’t have to pay any further tax on top.

  • Once you reach the age of 55 you can take up to 25% of your pension savings out in one or more tax free lump sums.

Accessing your pension savings

How much could your SIPP be worth?

Use our savings tool to work out how much you might be able to save for retirement.
Use our savings tool


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Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.