The benefits of a SIPP pension if you're a business owner

As a business owner, you'll already know that Self-invested Personal Pensions (SIPPs) come with many of the same benefits as workplace pensions.

These include unused pension annual allowance from the previous three tax years and the option to take up to 25% of your pension pot as a tax-free lump sum when you retire.

You'll also know that a SIPP puts you in the driving seat; you control how and where you invest your money, aligning it to your business's specific financial goals and objectives rather than leaving it in the hands of pension providers. There are many investment options, from bonds and property to shares in individual companies. SIPPs can be more flexible to access than workplace pensions.

Here are some business owner SIPP benefits that may be new to you:

• SIPPs can help you be tax-efficient

Your business makes contributions to your SIPP and these can then be deducted from your profits, saving you up to 25% in corporation tax. Limited Companies are likely to benefit most from this.

If you’re a sole trader or partner in a limited liability company, you can benefit from tax relief of up to 45% when making personal contributions into your SIPP.  You would, however, need to claim some of this back on your self-assessment tax return. Please note that personal pension contributions can only be made to the maximum of your relevant UK earnings.

• SIPPs can give you flexibility

You can adapt your pension savings strategy to your changing financial circumstances, reflecting quieter and busier periods for your business.

• SIPPs can help you be financially organised

A separate business-related pension fund can help you distinguish your personal retirement savings from those of the business. It can help protect personal assets from business-related risks and liabilities and simplify estate planning.

• SIPPs can be a way to invest in property

Did you know a SIPP can borrow money to help you acquire premises? In these instances, the SIPP 'owns' the property and your business rents it. You can then use the rent to repay the mortgage if there is one, or invest it within the SIPP. You can offset the rent payments against your profits, saving on corporation tax.

The added significant benefit is that the rent your business pay into the SIPP doesn't affect your annual pension allowance, meaning you can potentially save a lot quickly.

And in some cases, assets held within SIPPs may be protected from creditors if your business runs into challenges.

Let me give you an example.

Let's say the rent is £1,000 per month; that's £12,000 a year you can invest into your SIPP through shares, funds or hold in cash. If you further contribute the current maximum annual allowance of £60,000 into your pension, you could have up to £720,000 invested in your pension pot in as little as 10 years! [1]

This allows business owners who see their business as their pension to grow a second savings pot quickly while running their business.

And don’t forget you can save up to 25% in corporation tax on these £72,000 annual SIPP payments. Then even though the rental payment of £12,000 are not classed as contributions, they still can be offset against the business corporation tax as they are classed as business expenditure

Is a SIPP always worth it?

Not in every case. It needs commitment. Be aware that the SIPP administrator usually charges higher fees when holding commercial property or other investments – many capped to a maximum fee. You'll need to be able to make sufficiently large contributions to spare the charges eating up most of your investment returns.

If you’re a business owner wanting to unlock the full benefits of your SIPP, get in touch today!

[1] Assuming the yearly pension allowance stays at £60,000.

The value of a SIPP can fall as well as rise. You may get back less than the amount invested.

The flexibility of a SIPP allows you to spread the risk, especially if some investments perform badly. However, these do tend to have higher costs than a standard pension and active management is essential to maximise the benefits of the wider investment choice on offer. For these reasons, they will not be suitable for everybody and generally only those who are fairly experienced at actively managing their investment should consider this type of investment.

There are strict rules on what property can be held and how.

The investment growth within the fund is currently free from all UK personal Income and Capital Gains Taxes.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.