Do you pay tax on SIPP withdrawals?

Do you pay tax on SIPP withdrawals?

So you’ve been saving for retirement in a Self Invested Personal Pension (SIPP). Now you’re ready to start accessing your hard-earned pension pot. But how much tax will you pay on withdrawals?

Here at iSIPP, we want to keep pensions simple. So in this guide, we’ll clearly explain the SIPP withdrawal tax rules so you know where you stand.

Tax-free cash from your SIPP

The good news is that you can take up to 25% of your SIPP tax-free from age 55 (57 from 2028). This is known as your Pension Commencement Lump Sum.

For example, if you have a pension pot worth £100,000, you could withdraw £25,000 completely tax-free as your lump sum.

This tax-free amount is available to everyone and you get it automatically. You can take it all in one go or as a series of smaller lump sums. Just remember you can only take a maximum of 25% tax-free over your lifetime.

Taxable withdrawals

Any withdrawals you take from your SIPP above your tax-free lump sum allowance will be subject to income tax. This applies whether you take lump sum withdrawals or set up a regular retirement income.

There are two main ways to access your SIPP taxably:

Uncrystallised Funds Pension Lump Sum (UFPLS): Withdraw lump sums directly from your pension pot without having to move into drawdown. Each withdrawal is treated as 25% tax-free and 75% taxable income.

Income Drawdown: Move your pension into drawdown and set up a taxable income stream. How much income tax you pay depends on your total income for the year.

So in summary, 75% of most SIPP withdrawals are taxed as income. UFPLS payments or income drawdown will be added to your total income for the tax year and taxed accordingly based on your income tax band:

Basic Rate: 20% income tax

Higher Rate: 40% income tax

Additional Rate: 45% income tax

As your SIPP withdrawals are just another source of income for a tax year, your tax may be spread across different bands. Your SIPP provider will deduct tax automatically under PAYE before paying withdrawals.

Tax relief on contributions

It’s also worth remembering you received tax relief on contributions paid into your SIPP originally. This was an extra boost to your savings in return for agreeing to pay income tax on withdrawals later on.

So in short, while some SIPP payments are tax-free, in most cases you’ll pay income tax on 75% of withdrawals. But this is just the same as paying tax on earnings or other incomes. And tax relief received upfront means more got paid into your pension originally too.

We hope this guide has clearly explained what tax you’ll pay when accessing your SIPP. Contact us if you need any help with withdrawals or have any other


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The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

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