What Is a SIPP? Tax Relief, Limits and HMRC's Numbers

Michael Whitman · Trading since 2017, full-time since 2020 · Published 2026-09-26

A SIPP, a self-invested personal pension, is a UK pension you open and run yourself, choosing the funds, shares or other investments it holds. It gets the same tax treatment as other personal pensions: relief on the way in, and income tax on most of what comes out.

GOV.UK lists SIPPs as one type of personal pension, alongside stakeholder pensions, and describes them as pensions that “allow you to control the specific investments that make up your pension fund.” It adds that you should check the provider is registered with the Financial Conduct Authority.

How it works

You pay in from money that has already been taxed. A SIPP uses relief at source. GOV.UK says the provider “claims tax relief from the government at the basic 20% rate and adds it to your pension pot”, and that relief at source applies in all personal and stakeholder pensions.

So every £80 you pay becomes £100 in the pot. The £100 is the gross contribution; the £20 is basic-rate tax the government hands back. That is why providers often talk about contributions as a gross figure.

Higher earners claim the rest themselves. In England, Wales and Northern Ireland, GOV.UK says you can claim an extra 20% on your Self Assessment return up to the amount of income you paid 40% tax on, and an extra 25% up to the amount you paid 45% on. Scotland has its own bands and extra rates of 1%, 22%, 25% and 28%.

No earnings, smaller limit. Someone who pays no income tax can still get relief: the provider claims 20% on contributions up to 80% of their earnings, or £2,880 a year with no earnings at all, which becomes £3,600 in the pot.

The investments are the part you control. Inside the wrapper a SIPP can hold the same kinds of things a trading account can, such as index funds or individual shares, depending on the provider. The tax treatment is the pension’s; the risk is whatever you choose to buy.

The limits

Relief stops at 100% of your earnings. You cannot get relief on more than you earned in the tax year, and GOV.UK says HMRC can ask for anything over that back.

The annual allowance is £60,000. That is the most that can go into all your pensions in a tax year, from you and anyone else, including an employer, before a tax charge applies. Unused allowance from the previous three tax years can sometimes be carried forward.

It is lower for some people. High earners get a tapered allowance when threshold income is over £200,000 and adjusted income is over £260,000. And anyone who has already flexibly taken money from a pension pot moves onto the lower money purchase annual allowance.

The lifetime allowance is gone. GOV.UK says it was abolished on 6 April 2024. The cap now sits on the tax-free cash instead, as the next section shows.

A worked example

Take someone in England earning £60,270, with the 2026 to 2027 bands. GOV.UK’s income tax page sets the higher-rate band at £50,271 to £125,140, so £10,000 of that income, from £50,271 to £60,270, is taxed at 40%.

• They pay £8,000 into a SIPP from their bank account.
• The provider claims basic-rate relief and adds £2,000: £8,000 / 0.8 = £10,000 in the pot.
• They claim an extra 20% of £10,000 on their Self Assessment return, because £10,000 of their income was taxed at 40%: £2,000 comes back to them.
• Net cost: £8,000 - £2,000 = £6,000 for £10,000 in the pension.

This mirrors GOV.UK’s own example, which uses the same £60,270 salary in 2024 to 2025 and gives extra relief on £10,000 of a £12,000 payment, with “no additional relief on the remaining £2,000.”

Now the way out. Years later, 25% of that £10,000, £2,500, can be taken tax-free. The other £7,500 is taxed as income in the year it is drawn. If that person is a basic-rate taxpayer in retirement, the tax is 20% of £7,500, or £1,500, and £8,500 of the £10,000 reaches them after tax, on a £6,000 net cost, before any growth.

Taking the money out

Not before 55, and 57 from 6 April 2028. GOV.UK says most personal pensions set an age that is “not normally before 55.” An HMRC policy paper says the normal minimum pension age, the earliest most savers can take money without an unauthorized payment charge, rises from 55 to 57 with effect from 6 April 2028. Some savers keep a protected pension age, and an HMRC consultation of 6 August 2026 sets out draft rules for people aged 55 or 56 on 5 April 2028 who have already started taking benefits, so check your own scheme’s age. GOV.UK warns that schemes offering to release money before 55 can trigger an unauthorized payment taxed at up to 55%.

A quarter tax-free, with a cap. You can usually take up to 25% as a tax-free lump sum, and the most you can take is £268,275, the lump sum allowance. At 25%, that cap is reached on £1,073,100 of pension savings.

The rest is income. GOV.UK lists three routes for the remaining 75%: take cash, buy an annuity that pays an income for life, or move it into flexi-access drawdown and withdraw as needed. The order and pace of those withdrawals is its own decision, covered in withdrawal strategy.

Death is about to change. HMRC’s policy paper says most unused pension funds and death benefits come into the scope of inheritance tax from 6 April 2027.

SIPP against a stocks and shares ISA

The two are not rivals so much as tools for different horizons. A stocks and shares ISA gives up the relief in exchange for access and tax-free withdrawals; the pension trades access for relief. From 6 April 2027 the cash ISA limit falls to £12,000 for savers under 65, a change HMRC’s policy paper says is meant to encourage more retail investment. The Lifetime ISA sits between them, with a 25% bonus and its own withdrawal rules.

The original data

HMRC publishes how much goes into personal pensions each year. Its private pension statistics, updated on 30 July 2026, count individual contributions to personal pensions, including the basic-rate relief added to them. HMRC does not split out SIPPs, so these figures cover all personal pensions, of which SIPPs are one kind.

Money up, members down. Individual contributions reached £15.91 billion in 2024 to 2025, from £14.60 billion the year before and £8.11 billion in 2013 to 2014, an increase of 96.2%. Members making individual contributions fell to 6.40 million, from 6.81 million in 2023 to 2024. HMRC changed how members are counted from 2018 to 2019, so the fair comparison starts there: 9.39 million members became 6.40 million, down 31.8%, while contributions rose from £9.77 billion to £15.91 billion, up 62.8%. HMRC’s commentary puts the average at £2,480 per member in 2024 to 2025.

Most of the fall in members came in one year. Year by year from 2018 to 2019, contributions ran £9.77 billion, £10.60 billion, £11.73 billion, £12.66 billion, £12.94 billion, £14.60 billion and £15.91 billion, and members 9.39 million, 9.49 million, 6.84 million, 7.44 million, 6.85 million, 6.81 million and 6.40 million. The drop from 9.49 to 6.84 million came in 2020 to 2021. HMRC does not give a cause for that year, but its commentary notes that members are concentrated in a few large schemes whose changes “heavily influence the trends”. It also warns that late returns can understate members, that one person can be counted in several schemes, and that the table leaves out the two master trusts with the most members. The 2024 to 2025 figures are provisional. The yearly figures are in the HMRC contributions file.

The self-employed are a small, growing slice. 370,000 self-employed people paid in £3.01 billion in 2024 to 2025, up from 360,000 and £2.77 billion.

The relief itself is large. HMRC’s Table 6 estimates gross pension income tax and National Insurance relief at £83.9 billion in 2024 to 2025, and net relief at £53.8 billion, after £30.1 billion of pension tax charges, £29.8 billion of which is income tax on payments from pension schemes. Relief at source contributions by individuals accounted for £4.8 billion of income tax relief for employees and £1.1 billion for the self-employed.

When it fails

Locking up money that is needed sooner. A SIPP cannot be used as an emergency fund. Money paid in at 35 is out of reach for more than twenty years, and a withdrawal route before pension age is exactly what GOV.UK warns can be taxed as an unauthorized payment.

Relief in at 20%, tax out at 20%. For a basic-rate taxpayer who stays basic-rate in retirement, the gain is mostly the 25% tax-free part. An ISA may do nearly as well with none of the lock, so the comparison is worth running.

Choosing investments without a plan. Self-invested means the choices are yours, including bad ones. A SIPP holding a few speculative shares carries the same risk as a trading account, with less freedom to change course.

Missing the higher-rate claim. The extra relief is not automatic. A higher-rate taxpayer who does not claim it through Self Assessment, or through HMRC’s claim service for people who do not file a return, leaves money unclaimed.

Forgetting the allowance after drawing. Once a pension has been flexibly accessed, the lower money purchase annual allowance applies to further contributions, and a charge can follow.

Related

Pensions explains the difference between a defined benefit promise and a pot like a SIPP, which decides who carries the investment risk.

The stocks and shares ISA is the flexible alternative, and cash ISA against stocks and shares ISA covers the choice inside the ISA allowance.

The Lifetime ISA is the third option for later-life saving, with a bonus instead of tax relief.

This page is educational, not financial advice. Test every idea on your own charts before risking money.