A SIPP is a useful retirement savings tool, as it provides several tax advantages that could help you build your pot faster.
For example, the growth you receive on investments within your SIPP is tax-free, meaning you keep more of your savings.
Additionally, if you’re a UK taxpayer contributing to a SIPP, the government offers tax relief. This means that, in effect, you don’t pay Income Tax on the amount you pay into your pension.
However, the amount of tax relief you can benefit from each year is limited by your Annual Allowance.
You may need to be aware of how this allowance works as you pay into your SIPP throughout the tax year.
Read on to learn more.
Tax relief could give you a valuable boost to your pension savings
The UK government offers Income Tax relief to encourage savers to contribute to their pensions.
The way that this works depends on whether you’re making contributions before or after tax. When paying into your SIPP, you’ll typically be making contributions from your earnings after Income Tax has been deducted.
The SIPP provider can automatically claim 20% tax relief on these payments. This is equal to the basic rate of Income Tax, and the amount is paid into your pension.
To illustrate how this works, consider £100 from your salary. If you were a basic-rate taxpayer, you would pay 20% Income Tax (£20) on this amount, leaving you with £80.
If you then paid that £80 into your SIPP, the government would refund the £20 Income Tax you paid, meaning the full £100 goes into your pension.
If you are a higher- or additional-rate taxpayer paying 40% or 45%, you still only receive 20% tax relief automatically. However, you can claim the additional 20% or 25% through Self Assessment.
You benefit from tax relief on contributions up to 100% of your annual salary. Tax relief is limited to 100% of your relevant UK earnings in the tax year, subject to the Annual Allowance. If you have no relevant UK earnings, tax‑relievable contributions are generally limited to £3,600 gross per tax year.
You may trigger an additional tax charge if you exceed the Annual Allowance
When contributing to your pension, the tax relief you receive may be limited by the Annual Allowance.
As of 2026/27, this is £60,000, and the allowance resets at the beginning of the tax year on 6 April each year. You may be able to carry forward unused Annual Allowance from the previous three tax years, provided you were a member of a registered pension scheme during those years. Carry‑forward can increase the amount you are able to contribute without an additional tax charge.
If your total pension contributions exceed £60,000, you will trigger an additional tax charge. This recovers any tax relief you receive on contributions above the Annual Allowance.
In practice, this means that you can benefit from tax relief on 100% of your earnings or £60,000, whichever is lower.
Your Annual Allowance may be lower than £60,000 in certain cases
Depending on your circumstances, your Annual Allowance might be adjusted for several reasons.
The Tapered Annual Allowance
You may be subject to the Tapered Annual Allowance if your adjusted income exceeds £260,000 and your threshold income exceeds £200,000 in a tax year. Where the taper applies, your Annual Allowance is reduced by £1 for every £2 of adjusted income above £260,000, down to a minimum allowance of £10,000.
The Money Purchase Annual Allowance (MPAA)
The MPAA is triggered once you start flexibly accessing a defined contribution (DC) pension. Once you have drawn from your pension funds, your Annual Allowance falls to £10,000.
The MPAA is not triggered by taking only a pension commencement lump sum (tax‑free cash). It is triggered when you first take taxable pension income under flexible drawdown or certain lump‑sum payments.
As such, once you have started drawing from your SIPP, your ability to make tax-efficient contributions is limited.
Get in touch
You will benefit from tax relief at your marginal rate on eligible contributions to our SIPPs, subject to HMRC limits and allowances.
You can email us at [email protected] or call 03303 202091 for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
