What is a SIPP?

SIPPS are domestic UK pensions typically suited for individuals looking to make their own decision from a full range of investments and asset classes approved by HMRC. They are a type of UK registered personal pension scheme and were introduced by the UK's Finance Act in 1989. Potential investments may include collective investment funds, equities, corporate and government bonds, cash deposits and UK commercial property, subject to the providers discretion.

It is possible for both UK residents and non-residents to establish and own a SIPP. However, depending on your personal circumstances and residence status, tax relief on contributions into the pension scheme may or may not be available- if you live abroad and are paying into a SIPP, tax relief will only be available for the first five tax years of non-UK residence. As with a QROP, they are defined contribution schemes and it is possible to consolidate multiple pensions within a SIPP. For expatriates, the choice between a SIPP and a QROPS is multifaceted, reliant upon a number of factors including, but not limited to:

Whether one is a permanent or temporary expatriate

All things being equal, SIPPS tend to be more appropriate for temporary expatriates and QROPS are more suited to permanent expatriates. If you do not intend to retire in the UK, the country you will retire in and the relevant tax laws and treaties with the UK will be an important part of the evaluation process. For those retiring outside the UK, a QROP can have a far lower tax rate on the pension upon death, whereas a SIPP would be subject to your beneficiaries marginal tax rate (up to 45%) if you die over the age of 75.

The size of the pension

As a domestic UK scheme SIPPS are subject to the lifetime allowance and its tax implications. The lifetime allowance has now fallen to £1 million thereby affecting more and more individuals. Pension savings above the LTA may be taxed at up to 55%. If you transfer your pension into a QROPS, it is tested against the LTA at the time of the transfer and is not subject to the LTA thereafter, therefore if the value of your UK pension is close to or exceeds the lifetime allowance, a QROPS could be advantageous.

For example, with a SIPP one is able to take a tax free 25% pension commencement lump sum at 55, whereas QROPS allow for a 30% withdrawal.

This is before one even considers inheritance tax efficiency and other issues. Some individuals may discover it is advantageous to acquire a SIPP over a QROPS even though they are not resident in the UK.

This issue is quite technical. Take advantage of expert advice in this area by speaking to one of our experienced advisers who will be able to assess your unique set of circumstances.