Are SIPP Contributions Tax Deductible

Learn if SIPP contributions are tax deductible in the UK and how tax relief works for individuals and company directors.

Saving for retirement through a Self-Invested Personal Pension (SIPP) is a popular and flexible option for individuals, the self employed and company directors in the UK. One of the main advantages of a SIPP is the generous tax treatment, including the ability to claim tax relief on your contributions. But what does this mean in practice, and are SIPP contributions genuinely tax deductible?

The short answer is yes. SIPP contributions are tax deductible, but how the tax relief is applied depends on who is making the contribution and whether it comes from personal or company funds. This article explains how tax relief on SIPP contributions works, how much you can contribute, and what you need to do to claim it correctly through Self Assessment or company accounts.

What Is a SIPP?

A SIPP is a type of personal pension that gives you control over how your retirement savings are invested. Unlike standard personal pensions that are limited to a provider’s funds, a SIPP allows you to choose from a broader range of investments, including:

  • Stocks and shares

  • Investment funds

  • Corporate bonds and gilts

  • Commercial property (in some cases)

SIPPs are regulated pensions that must comply with HMRC rules, including contribution limits, age restrictions and authorised withdrawals.

Are SIPP Contributions Tax Deductible for Individuals?

Yes. If you are a UK taxpayer making personal contributions into a SIPP, you can claim Income Tax relief on those contributions, up to certain limits. This means:

  • Your SIPP provider will claim basic rate tax relief (20%) on your behalf and add it to your pension pot

  • If you are a higher rate (40%) or additional rate (45%) taxpayer, you can claim extra tax relief through Self Assessment

  • Your total contributions that receive relief cannot exceed 100% of your relevant UK earnings, or £60,000 per year, whichever is lower

For example:

  • You contribute £8,000 into your SIPP

  • The provider claims £2,000 from HMRC and adds it to your pot

  • Your total contribution is now £10,000

  • If you are a higher rate taxpayer, you can claim another £2,000 through your tax return

This process effectively reduces your taxable income and means your SIPP contribution is tax deductible, but in a personal way rather than as a business expense.

You do not need to notify HMRC of your contributions unless you are claiming higher or additional rate relief. If you do not file a tax return, you can contact HMRC to have your tax code adjusted instead.

How to Claim Higher Rate Relief on SIPP Contributions

If you are entitled to tax relief above the basic rate, you must include your gross SIPP contributions (your payment plus the 20% relief added by the provider) on your Self Assessment tax return.

In your return:

  • Enter your contributions in the “Payments to registered pension schemes” section

  • Use the gross figure (i.e. your payment plus the basic rate top-up)

  • HMRC will calculate and add the extra tax relief to your refund or adjust your bill accordingly

This ensures you receive the full benefit of the relief based on your income level. The additional tax relief is not added to your pension but reduces your Income Tax liability instead.

Are SIPP Contributions Tax Deductible for Sole Traders?

If you are self employed, your personal SIPP contributions work in the same way. You receive tax relief personally, not as a business expense. You cannot deduct the contributions from your business profits.

Instead, SIPP contributions reduce your Income Tax, not your self employment profits. You still calculate and report your trading income as normal, then claim pension tax relief through the personal section of your return.

For example:

  • Your business profits are £40,000

  • You contribute £8,000 to a SIPP

  • Your provider adds £2,000 in basic rate relief

  • You claim an additional £2,000 higher rate relief on your return

  • Your profits remain £40,000, but your Income Tax is reduced

Keep all documentation from your SIPP provider to support your claim and ensure you do not exceed the annual limit.

Are SIPP Contributions Tax Deductible for Companies?

Yes. If a limited company makes employer contributions to a SIPP on behalf of a director or employee, those contributions are generally tax deductible for Corporation Tax purposes.

Key points:

  • The contribution is paid directly from the company, not from the director’s net salary

  • It is not classed as a benefit in kind if it is a genuine employer pension contribution

  • It reduces the company’s Corporation Tax liability as a business expense

  • There are no National Insurance contributions due on the payment

For example:

  • A company contributes £10,000 into the director’s SIPP

  • The company deducts £10,000 from its taxable profit

  • At 25% Corporation Tax, the saving is £2,500

  • The director does not pay Income Tax or NIC on the contribution

The company must ensure the contribution meets the “wholly and exclusively for the purpose of the trade” test, though this is usually satisfied for reasonable pension contributions as part of remuneration.

There is no need for the director to have sufficient personal income to match the contribution when paid by the company. However, the £60,000 annual allowance still applies, and the director’s total pension input from all sources must remain within this threshold to avoid a tax charge.

What Is the Annual Allowance?

The annual allowance is the maximum amount you can contribute to pensions each tax year with tax relief. For 2024/25, it is £60,000, including:

  • Personal contributions

  • Employer contributions

  • Basic rate tax relief added by the provider

If you exceed the allowance, you may have to pay an annual allowance charge, which removes the tax benefit on the excess.

If you have not used all your allowance in the past three tax years, you can carry forward unused allowances to boost your limit, provided you were a member of a registered scheme during those years.

If your adjusted income is over £260,000, your annual allowance may be reduced under the tapered annual allowance rules, down to a minimum of £10,000.

Lifetime Allowance Abolished

As of April 2024, the lifetime allowance has been abolished. This means there is no longer a limit on the total value of your pension pots for tax purposes when you withdraw. However, there are still caps on tax-free lump sums and careful planning is still required when making large contributions.

Can You Deduct SIPP Contributions from Rental or Investment Income?

No. SIPP contributions must be supported by relevant UK earnings, such as:

  • Employment income

  • Self employment income

  • Company director salaries

Income from property, dividends, or interest does not count as relevant earnings. This means landlords or investors cannot claim personal pension relief based on these income sources alone.

However, if you are a director and take a salary, or you are self employed with trading income, you may be eligible to contribute.

Company contributions are not limited by relevant earnings but must stay within the annual allowance.

Conclusion

SIPP contributions are tax deductible, but the way relief is applied depends on your circumstances. For individuals and sole traders, tax relief is claimed personally, reducing your Income Tax liability. For limited companies, employer contributions are deductible for Corporation Tax and offer a highly tax efficient way to fund retirement.

To ensure your contributions are fully compliant:

  • Keep within the annual allowance

  • Use carry forward rules where appropriate

  • Ensure company contributions are commercially justifiable

  • Keep clear records of all contributions and reliefs claimed

A SIPP can be a powerful long-term planning tool, both for reducing your current tax bill and building a secure retirement. For high earners, company directors and self employed professionals, combining personal and employer contributions offers even greater flexibility and tax efficiency. If your situation is more complex, professional advice can help you structure your pension strategy effectively.