Taxation & Technical Aspects of a SIPP:
•Contributions to SIPPs are treated identically to contributions to personal pensions.
•Any "relevant UK individual" can contribute up to 100% of their relevant UK earnings into a SIPP, or, if they have no earnings, they can contribute up to £3,600 gross per annum e.g. Mrs Smith is earning £100,000 per year and she can contribute up to £100,000 per year into her SIPP. Anyone, even a child, can contribute up to the non-earnings limit of £3,600 gross into a SIPP
•The annual maximum tax relievable contribution level is £50,000 for 2011/12. You can contribute more, but it will be taxed at 40%.
•From 2011/12 it is possible to carry forward any unused allowance from the previous 3 tax years (for this purpose the maximum allowance is £50,000 per tax year).
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Pensionable income including employment income, bonus, benefits in kind, self employment and partnership profits can all be contributed (Pensionable income does not include investment income, rental income or pension income).
• 25% of your pension investment can be taken as a tax free cash lump sum.
•The remaining 75% must be left for a long term pension income. This can be taken as an income drawdown or purchase an annuity.
•Drawdown income is limited (by the provider) to approx 7% of the drawdown fund value (this is reviewed every 5 years). Income taken from DrawDown or an Annuity is taxed 'as if' earned income at the members highest marginal rate.
•If the fund value exceeds the 'Lifetime Allowance' of £1.8 million (tax years 2010/11 and 2011/12) at retirement, then the amount above £1.8 million will be taxed at 55%. From April 2012 the 'Lifetime Allowance' will fall to £1.5 million but there will be provisions for those previously relying on the higher limit.
•SIPPs can borrow up to 50% of the net value of the pension fund to invest in any assets, although in practice SIPP trustees are only likely to permit this for commercial property purchase.
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