SIPPs Explained – What They Are and How They Work

Luke Worthy MBA LLB FPFS

Chief Executive Officer

November 28, 2025

A Self-Invested Personal Pension (SIPP) is a flexible type of personal pension. A SIPP gives you more control over how your retirement savings are invested. Unlike traditional pensions where your provider chooses and manages investments for you, a SIPP allows you to decide where your money goes.

For many people, this level of control opens up new opportunities – from choosing specific funds and shares to buying commercial property through your pension. Understanding how SIPPs work, and who they’re most suitable for, can help you make informed decisions about your future wealth.

What Is a SIPP?

A SIPP is a UK-registered personal pension designed for people who want to manage their own retirement savings more actively. You can contribute to a SIPP as an individual, or your employer can make contributions on your behalf. Just like other pensions, you receive tax relief on the money you pay in — meaning that some of the money that would normally go to the taxman goes into your pension instead.

SIPPs follow the same basic rules as other pensions:

  • You can usually access your savings from age 55 (rising to 57 in 2028)
  • You can take up to 25% as a tax-free lump sum when you retire
  • Your remaining funds can then provide a regular income through drawdown or an annuity

The key difference is flexibility. With a SIPP, you decide how your pension is invested. This can be particularly valuable if you’re experienced, self-employed or working with a professional financial adviser.

How does a UK SIPP work?

The principle is straightforward. You pay money into your SIPP (either regularly or as a lump sum), and that money is invested with the aim of growing your pension pot over time.

Your contributions receive tax relief up to your annual allowance, and any investment growth within the SIPP is free from UK income tax and capital gains tax. This makes SIPPs one of the most tax-efficient ways to build long-term wealth.

Unlike a standard personal pension, where you’re limited to a small range of funds chosen by the provider, a SIPP lets you select from a far wider range of investments. You can:

  • Buy individual shares or bonds
  • Choose from a wide selection of funds and investment trusts
  • Hold cash or gilts
  • Invest in commercial property

While you control where your money goes, the pension itself is held under trust and administered by a professional provider. They ensure your investments comply with pension legislation and manage the paperwork for you.

It’s worth remembering that investment values can fall as well as rise, so it’s important to consider your level of experience, your appetite for risk and the ongoing costs of running a SIPP.

Employee Benefits A pair fist-pumping in an office

Explore your SIPP potential

What can you invest in through a SIPP?

The main appeal of a SIPP is its flexibility. As well as mainstream investments such as funds, shares, and bonds, SIPPs can also hold certain alternative assets — including commercial property.

Allowable investments usually include:

  • UK and overseas company shares
  • Investment funds (unit trusts, OEICs, ETFs, investment trusts)
  • Corporate bonds and gilts
  • Commercial property and land
  • Cash deposits

There are, however, clear restrictions. SIPPs cannot be used to buy residential property (such as buy-to-lets or holiday homes). Doing so would normally be treated as an ‘unauthorised payment,’ which can trigger large tax penalties.

Each SIPP provider will have its own rules and may limit which types of assets you can hold, particularly for complex investments such as property.

Using a SIPP to buy commercial property

One of the most interesting features of a SIPP is the ability to invest in commercial property including offices, warehouses or retail units. This can be especially appealing if you run your own business.

Under UK pension rules, a SIPP can purchase commercial premises and lease them to your company (or another business) on commercial terms. The rent your business pays goes directly into your pension, where it’s sheltered from income tax. Over time, this can help grow your retirement savings while your company benefits from paying rent into an asset you own through your pension, rather than to an external landlord.

Example Scenario

If you currently rent your office or warehouse space, your SIPP could purchase that property (subject to affordability and provider approval). Your business would then pay rent to the SIPP, which becomes income for your pension fund. The property itself is owned by the pension, so any future rise in its value benefits your retirement savings.

This approach can offer several advantages:

  • Tax efficiency: Rent received by the SIPP is tax-free, and rent paid by the business can usually be treated as a deductible expense
  • Asset ownership: You effectively move your business premises into your long-term pension assets
  • Wealth diversification: The property becomes part of your broader investment portfolio

However, there are important rules to follow:

  • The property must be commercial, not residential
  • All lease terms and rent levels must be set at market rates and properly documented
  • You must avoid ‘connected-party’ issues – transactions must be at arm’s length to remain compliant
  • There are costs involved, such as legal fees, surveyor costs and ongoing property management

Using a SIPP to buy property can be a smart move for business owners who want to align their commercial and retirement planning, but it’s also complex. It’s essential to take professional financial and legal advice before proceeding.

Turn your rent into a pension asset

Is a SIPP right for you?

A SIPP offers excellent flexibility, but it isn’t suitable for everyone. It tends to work best for:

  • Self-employed individuals or company directors who want to manage their own pension strategy
  • Experienced investors comfortable making their own decisions
  • Business owners interested in using pension funds for property ownership
  • Those with larger pension pots who can absorb the costs and potential volatility of a wider investment mix

If you prefer a simpler, lower-maintenance pension or have a smaller pot, a standard personal or workplace pension may be more appropriate.

Because SIPPs involve more responsibility and potentially higher costs, it’s essential to seek guidance from an independent financial adviser. They can help you determine whether the flexibility of a SIPP aligns with your goals, or whether another approach might deliver the same outcome with less complexity.

Key Takeaways

A SIPP is a type of personal pension that lets you control your own investments

Contributions receive tax relief, and growth within the pension is tax-efficient

You can invest in a wide range of assets, including commercial property

Business owners can use a SIPP to buy premises, with rent paid into the pension fund

This strategy can be highly tax-efficient but requires careful planning and professional advice

Make your pension work harder

Ready to explore whether a SIPP could work for you?

If you’d like to understand how a Self-Invested Personal Pension might fit into your financial plans, or explore the possibility of buying commercial property through your pension, our expert advisers can help you assess your options and plan with confidence.

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Frequently asked questions – SIPPs

What is a Self-Invested Personal Pension (SIPP)?

A Self-Invested Personal Pension (SIPP) is a type of personal pension that gives you greater control over how your money is invested. Unlike standard pensions, which limit you to a set list of funds, a SIPP allows you to choose from a wide range of investments. These include shares, funds, bonds and even commercial property. You’ll still benefit from tax relief on contributions and tax-efficient growth within the pension.

Can I buy property through a SIPP?

Yes, you can buy property through a SIPP. These must be commercial in use, so offices, warehouses or retail units. The rent paid by tenants (including your own business, if applicable) goes back into your pension pot tax-free, helping it grow over time.  Residential property, such as buy-to-lets or holiday homes, isn’t allowed under HMRC rules. Attempting to include these could result in significant tax penalties.

Who is a SIPP suitable for?

A SIPP is best suited to people who want more say in how their pension is managed. This is typically business owners, self-employed professionals or experienced investors. Because SIPPs involve more choice and responsibility, they tend to suit those with medium to large pension pots who are comfortable making, or receiving advice on, investment decisions

What are the risks of a SIPP?

While SIPPs offer flexibility and potential for growth, they also come with higher risks. Investment values can go down as well as up, and certain assets – such as commercial property – can be harder to sell quickly if you need cash. Fees can also be higher than with a standard pension, so it’s important to understand the costs and get professional advice to make sure a SIPP fits your long-term goals.

How much can I pay into a SIPP each year?

You can usually contribute up to 100% of your annual earnings, capped at the current annual allowance set by the government. Contributions within this limit receive tax relief at your marginal rate.  If you’ve already started drawing a flexible income from your pension, your allowance may reduce under the Money Purchase Annual Allowance (MPAA) rules. For higher earners, the allowance may also taper down. Because these thresholds can change, it’s always worth checking the latest limits or speaking to an adviser before making large contributions.

How much can I pay into a SIPP each year?

You can usually contribute up to 100% of your annual earnings, capped at the current annual allowance set by the government. Contributions within this limit receive tax relief at your marginal rate.  If you’ve already started drawing a flexible income from your pension, your allowance may reduce under the Money Purchase Annual Allowance (MPAA) rules. For higher earners, the allowance may also taper down. Because these thresholds can change, it’s always worth checking the latest limits or speaking to an adviser before making large contributions.

Can I transfer my existing pensions into a SIPP?

Yes, most people can transfer existing personal or workplace pensions into a SIPP. Doing this can help you bring several pots together, giving you a clearer picture of your overall retirement savings and more investment flexibility. Not all transfers are straightforward – especially from defined benefit (final salary) schemes – so it’s important to take independent financial advice before making any decisions. An adviser can help ensure a transfer is suitable and that you don’t lose valuable guarantees or benefits.

Important information

The information on this page is for general guidance only and does not constitute personal financial advice. We recommend seeking advice tailored to your individual circumstances before making financial decisions.

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