The short version
- A SIPP (self-invested personal pension) is a personal pension where you choose the investments, and those can include ETFs.
- The government tops up what you pay in. Pay in £80 and your provider claims £20 of basic-rate tax relief. Higher and additional-rate taxpayers can claim more through Self Assessment.
- In 2026/27 most people can pay up to £60,000 a year into all their pensions combined, but tax relief only covers contributions up to what they earn.
- The price is access. You usually can't touch the money until 55, rising to 57 from 6 April 2028. Then a quarter can usually come out tax-free, and the rest is taxed as income.
Part of Getting started. For the whole process in order, see how to buy your first ETF, step by step.
- £60,000annual allowance across all your pensions, 2026/27
- £268,275most you can usually take tax-free in total (the lump sum allowance), 2026/27
- 57minimum pension age for most people from 6 April 2028, up from 55
What a SIPP is
A personal pension is one you arrange yourself, rather than one your employer sets up. A SIPP is the type that, in GOV.UK’s words, lets you “control the specific investments” in your pension.
It’s a defined contribution pension: what you end up with depends on what goes in and how the investments do. Nothing is guaranteed.
Inside the pension, your investments grow without tax. HMRC’s pensions manual says investment income and gains held for a registered pension scheme are exempt from income tax and capital gains tax. Dividends from your ETFs, and profits when you sell, are untouched while the money stays in.
A SIPP is the account; an ETF is one thing you can put inside it. New to ETFs? Start with what is an ETF?
How tax relief works
Pension tax relief means the government gives you back the income tax on what you pay in. With a SIPP it arrives in two parts.
- Basic-rate relief is added for you. Under “relief at source”, you pay in from your take-home pay, and your provider claims 20% from the government and adds it to your pot. So £80 from you becomes £100 in the pension.
- Higher and additional-rate relief is claimed by you. In England, Wales and Northern Ireland you can claim an extra 20% on contributions up to the amount of your income taxed at 40%, and an extra 25% on contributions up to the amount taxed at 45%. You claim it through your Self Assessment tax return, and it reduces your tax bill rather than going into the pension.
In 2026/27 the higher rate starts at £50,271. So someone earning £60,270 has £10,000 of income taxed at 40%. GOV.UK’s worked example shows that if they pay £12,000 into a relief at source pension, they can claim the extra 20% on £10,000 of it, not on all £12,000.
Scottish taxpayers have different bands, and different extra relief.
There’s a cap. You only get relief on contributions up to 100% of your earnings for the year. If you have no earnings, your provider can still claim 20% on up to £2,880 a year, which becomes £3,600 in the pension.
How much you can pay in
The main limit is the annual allowance: the most that can go into all your pensions in a tax year, from you, your employer and anyone else, before a tax charge applies. For 2026/27 it’s £60,000.
- Carry forward. You may be able to use annual allowance you didn’t use in the previous three tax years. The rules are fiddly, so check them before relying on it.
- The tapered allowance. For 2026/27, if your “threshold income” is over £200,000 and your “adjusted income” is over £260,000, your allowance shrinks, to as little as £10,000.
- The money purchase annual allowance. Once you start taking money flexibly from a pension, for example cash from drawdown or a lump sum straight from your pot, the limit on future payments into defined contribution pensions drops to £10,000 a year (2026/27).
Go over your allowance and you or your provider must pay a tax charge, reported through Self Assessment.
When you can take the money
This is the big difference from an ISA. GOV.UK says you can usually take money from a pension after you’re 55, depending on the scheme’s rules.
That age is rising. From 6 April 2028 the minimum pension age goes up to 57. Some people who already had a right to take their pension earlier, before 4 November 2021, keep a protected pension age. Members of the firefighters’, police and armed forces public service schemes aren’t affected, and there are exceptions for ill health.
So anything you pay into a SIPP is out of reach until then. A stocks and shares ISA works the other way round: no upfront tax relief, but access whenever you want.
How withdrawals are taxed
Pension money is taxed on the way out, not on the way in.
- A quarter tax-free. You can usually take up to 25% of a pension as a tax-free lump sum. The most you can take tax-free in total is £268,275 in 2026/27, known as the lump sum allowance.
- The rest is income. Everything else is taxed like a salary. In GOV.UK’s example, £15,000 of a £60,000 pension can come out tax-free and the provider taxes the other £45,000 before you get it.
- Timing matters. Your Personal Allowance, the income you can have tax-free, is £12,570 in 2026/27. A large sum in one year may be partly taxed at a higher rate.
The choices at this stage, such as drawdown or an annuity, are beyond this guide. If you’re 50 or over with a defined contribution pension, Pension Wise from MoneyHelper offers a free, impartial, government-backed appointment to explain them.
Pensions and inheritance tax from April 2027
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count as part of your estate for inheritance tax. The government set this out in a policy paper in November 2025, and HMRC says it was legislated for in Finance Act 2026.
- Inheritance tax is normally charged at 40% on the part of an estate above the £325,000 threshold.
- Pensions passing to a spouse or civil partner stay exempt.
- Death-in-service benefits from a registered pension scheme are outside the change.
- The estate’s personal representatives, not the pension scheme, will be responsible for reporting and paying any tax due.
If you’d thought of a pension partly as a way to pass money on, this is worth factoring in.
A SIPP or a workplace pension?
You can have both. But a workplace pension has one feature a SIPP can’t match: your employer pays in.
Under automatic enrolment, the minimum total is 8% of qualifying earnings, with at least 3% from your employer. Qualifying earnings are those between £6,240 and £50,270 a year. Some employers match higher contributions too.
MoneyHelper describes leaving a workplace pension as like turning down extra pay. Moving your contributions to a SIPP instead could mean giving up your employer’s money, so it’s worth knowing exactly what you’d lose.
Some employers also offer salary sacrifice, which saves National Insurance. From April 2029, only the first £2,000 a year sacrificed into a pension will be free of National Insurance. Employer contributions will stay free of it.
The questions that matter:
- How much does my employer pay in, and will it pay more if I do?
- What does my workplace scheme charge, and which funds can I choose?
- Do I want more choice, such as picking my own ETFs, enough to run a separate SIPP?
If you’re unsure, MoneyHelper offers free guidance, and a regulated financial adviser can give personal advice. You can check an adviser on the FCA register.
Some people also weigh pension saving against overpaying their mortgage.
Common questions
- Can I hold ETFs in a SIPP?
- Yes. A SIPP lets you choose your investments, and ETFs are among them. The range on offer depends on the platform.
- Do I pay tax on dividends inside a SIPP?
- No. Investment income and gains in a registered pension scheme are exempt from income tax and capital gains tax. Tax comes when you take money out.
- Can I have a SIPP and a workplace pension?
- Yes. Everything paid into all your pensions counts towards the same £60,000 annual allowance in 2026/27.
- Can I get my money out early in an emergency?
- Generally not before the minimum pension age, unless you’re retiring early because of ill health. That’s one reason many people keep an emergency fund in cash alongside a pension.
This page explains how SIPPs and pension tax work. It isn't advice about what you should do. Tax rules can change, and how they apply depends on your circumstances. Investments can fall as well as rise, and you may get back less than you put in. For free, impartial guidance, try MoneyHelper. Read the full disclaimer.
Sources
- Personal pensions, GOV.UK
- PTM024400: tax exemptions, HMRC Pensions Tax Manual
- Tax on your private pension contributions: tax relief, GOV.UK
- Income Tax rates and Personal Allowances, 2026 to 2027, GOV.UK
- Tax on your private pension contributions: annual allowance, GOV.UK
- Pension schemes rates and allowances, HMRC, updated 6 April 2026
- Early retirement: personal and workplace pensions, GOV.UK
- Increasing normal minimum pension age, HMRC policy paper, 4 November 2021
- Tax when you get a pension: what's tax-free, GOV.UK
- Tax on your private pension: lump sum allowance, GOV.UK
- Inheritance Tax: unused pension funds and death benefits, HMRC policy paper, 26 November 2025
- Inheritance Tax on pensions: technical note 2, HMRC, 27 August 2026
- Inheritance Tax, GOV.UK
- Workplace pensions: what you, your employer and the government pay, GOV.UK
- Changes to salary sacrifice for pensions from April 2029, HMRC, 26 November 2025
- How pension auto-enrolment works, MoneyHelper
- Pension contribution matching, MoneyHelper
- Pension Wise, MoneyHelper
- Financial Services Register, Financial Conduct Authority
Facts checked 13 October 2026.