What is a SIPP (Self-Invested Personal Pension)?
A SIPP (Self-Invested Personal Pension) is a UK Defined-Contribution pension wrapper that lets you choose your own investments and claim 20 to 45 percent income tax relief on contributions. For 2026/27 the annual allowance is GBP 60,000 (or 100 percent of earnings if lower), with tapers for the highest earners.
Detailed definition
SIPPs were created by the 1989 Finance Act and grew rapidly after the 2006 A-Day pension simplification, which standardised the rules for all UK Defined-Contribution pensions. Today SIPPs sit at the do-it-yourself end of the pension spectrum: a SIPP holder picks the investments (funds, ETFs, individual shares, commercial property, gilts, cash) inside the wrapper, in contrast to a workplace Defined-Contribution scheme where the trustee usually offers a short fund menu.
The wrapper is regulated by the FCA and protected by the FSCS up to GBP 85,000 per provider for the cash and investment elements. Income earned and capital gains made inside a SIPP are entirely free of UK income tax and CGT, mirroring the ISA treatment, with the crucial difference that SIPP contributions also attract upfront income tax relief at the saver's marginal rate.
The April 2023 reforms (Spring Budget) raised the standard annual allowance from GBP 40,000 to GBP 60,000, raised the MPAA from GBP 4,000 to GBP 10,000, and abolished the Lifetime Allowance (LTA) for tax purposes (the LTA charge was set to zero from April 2023 and the LTA itself removed from the statute book in April 2024). The 25 percent tax-free lump sum is now capped at GBP 268,275 (25 percent of the old LTA) under the new Lump Sum Allowance.
How it works
Annual allowance 2026/27 = GBP 60,000 (or 100% of relevant UK earnings if lower) Tax relief at source = +25% of net contribution (recovers 20% from HMRC) Higher-rate extra = +20% reclaim via Self Assessment (40% payer) Additional-rate extra = +25% reclaim via Self Assessment (45% payer) Tapered allowance kicks in = adjusted income > GBP 260,000 Minimum tapered allowance = GBP 10,000 (adjusted income >= GBP 360,000) Money Purchase Annual Allowance (MPAA) after flexible drawdown = GBP 10,000 Carry forward = unused allowance from prior 3 tax years Access age = 55 (57 from 6 April 2028) Lump Sum Allowance = GBP 268,275 (25% tax-free)
Worked example
James earns GBP 80,000 in 2026/27 and pays GBP 8,000 net into his SIPP. He is a higher-rate taxpayer.
- Net contribution: GBP 8,000 from James' bank account.
- Basic-rate relief at source: Provider claims 25 percent gross-up = GBP 2,000 added to the pot.
- Gross contribution in the SIPP: GBP 10,000.
- Higher-rate reclaim via Self Assessment: Extra 20 percent of the gross = GBP 2,000 reduction to his tax bill.
- Net cost to James: GBP 8,000 paid in minus GBP 2,000 reclaimed = GBP 6,000.
- Effective return on day 1: GBP 10,000 in the pot for GBP 6,000 out of pocket = 66.7 percent.
SIPP vs ISA: which wrapper wins?
| Feature | SIPP | ISA |
|---|---|---|
| Annual contribution cap (2026/27) | GBP 60,000 (or 100 percent earnings) | GBP 20,000 |
| Tax relief on contributions | 20 to 45 percent at marginal rate | None |
| Tax on growth | 0 percent | 0 percent |
| Withdrawal age | 55 now, 57 from 2028 | Any age |
| Tax on withdrawals | 25 percent tax-free, rest as income | 0 percent on all amounts |
| Inheritance treatment | Outside the estate; flexible nomination | Inside the estate; APS for spouse |
| Best for | Higher-rate payers, employer-matched contributions, long-horizon retirement money | Basic-rate payers, pre-retirement flexibility, money you may want before 57 |
Higher and additional rate payers usually max the SIPP first to capture the 40 to 45 percent relief, then route the rest into an ISA. A basic-rate payer who expects to retire on basic-rate income gains less from a SIPP (20 percent in, then 15 percent out after the tax-free cash, a 5 point net advantage) so often prefers the ISA's flexibility.
Related terms
Related calculators on 3Tej
Work out the tax relief, drawdown, and post-retirement income from your SIPP:
Frequently asked questions
What is the SIPP annual allowance for 2026/27?
The standard annual allowance for the 2026/27 UK tax year is GBP 60,000, or 100 percent of relevant UK earnings if lower. This figure has applied since 6 April 2023, when the allowance was raised from GBP 40,000 and the lifetime allowance was abolished. The annual allowance covers gross contributions to all your registered pensions (SIPPs, workplace schemes, personal pensions) in the tax year.
How does SIPP tax relief work?
You contribute net of basic-rate tax and the SIPP provider claims the 20 percent back from HMRC automatically (relief at source). A GBP 8,000 contribution becomes GBP 10,000 in your pot. Higher-rate (40 percent) and additional-rate (45 percent) taxpayers claim the extra 20 or 25 percent through Self Assessment, reducing their tax bill. For a higher-rate taxpayer, GBP 10,000 in the pension costs only GBP 6,000 net.
What is the tapered annual allowance for high earners?
For 2026/27, if your threshold income (taxable income less personal pension contributions) is above GBP 200,000 and your adjusted income (broadly all income plus all pension contributions) exceeds GBP 260,000, the annual allowance is reduced by GBP 1 for every GBP 2 of adjusted income above GBP 260,000, down to a minimum allowance of GBP 10,000 once adjusted income reaches GBP 360,000.
At what age can I access my SIPP?
The current Normal Minimum Pension Age (NMPA) is 55, rising to 57 on 6 April 2028 under the Finance Act 2022 changes. You can take 25 percent of the pot as a tax-free lump sum (capped at GBP 268,275 across all your pensions, the lump sum allowance set when the lifetime allowance was abolished in April 2024) and either draw down the rest, buy an annuity, or take ad-hoc lump sums (UFPLS), all taxed as income.
What is the Money Purchase Annual Allowance (MPAA)?
Once you flexibly access your pension (take income beyond the 25 percent tax-free amount), your ability to make further pension contributions is restricted to the Money Purchase Annual Allowance of GBP 10,000 per tax year for 2026/27, down from GBP 60,000. It is permanent and irreversible. Anyone considering taking pension income while still working should plan around this trap.
Can I carry forward unused SIPP allowance from previous years?
Yes, you can carry forward unused annual allowance from the previous three tax years, provided you were a member of a registered UK pension scheme in each of those years. For 2026/27 you can potentially contribute the current GBP 60,000 plus unused allowance from 2023/24, 2024/25, and 2025/26 (all also GBP 60,000), giving a maximum gross contribution of GBP 240,000, capped at 100 percent of current-year earnings.
Sources and further reading
- HMRC (2026) Tax on your private pension contributions, gov.uk - the annual allowance and tapering.
- HMRC (2024) Abolition of the Lifetime Allowance, gov.uk - LTA reform and Lump Sum Allowance.
- Pension Wise / MoneyHelper (2026) Pension Wise guidance - free government-backed guidance.
- FCA (2024) Retirement income market data - drawdown and annuity volume statistics.
- MoneySavingExpert (2026) SIPP best buys - provider comparison.