Bed and SIPP rules

What is a bed and SIPP?

A bed and SIPP is where you use some of your existing investments to top up or open your SIPP, in a transfer process known as 'to bed'. This might be instead of contributing from your income, or in addition to it.

As the investments you want to move into your SIPP will count as a contribution, you should be mindful of your annual allowance when considering a bed and SIPP.

This is the maximum amount you can pay into your pension each year and receive tax relief. It is the lower of £60,000 or 100% of your earnings.

Benefits of a bed and SIPP

The key benefits of a bed and SIPP come from the tax-efficient SIPP wrapper.

• Tax relief on contributions

Any investments you move into your SIPP count as a contribution and, providing you have unused annual allowance, you will benefit from tax relief.

This tax relief can make a big difference to your pension savings. Pay £80 into your SIPP and it will be topped up with 20% tax relief, turning your contribution into £100 in your pension.

Higher rate taxpayers can claim a further 20% tax relief through their self-assessment tax returns, and additional rate taxpayers can claim a further 25%.

• Tax-free investment growth

Your investments grow free of income and capital gains tax inside the SIPP wrapper.

• Inheritance tax benefits

Anything you leave to beneficiaries in your SIPP will not be considered part of your estate for inheritance tax purposes.  

Potential pitfalls of bed and SIPP

Before you decide to bed and SIPP, you need to be aware of the potential pitfalls of moving your investments into a SIPP.

• Capital gains tax implications

As you will need to sell your investments to move them into a SIPP, you could trigger a capital gains tax liability.

Capital gains tax is paid on any profits you make on investments above your tax-free allowance (known as the annual exempt amount). This tax year (2023/24) the allowance has been reduced to £6,000 and is set to be cut to £3,000 from 2024/25.

Any gains in excess of the allowance are added to your taxable income. Capital gains tax at 10% is charged on anything within the basic rate income tax band. Any gains above the basic rate band face a 20% capital gains tax charge.

• More restricted access

You will not be able to make any withdrawals from your SIPP until you reach age 55 (57 from 2028). Depending on your circumstances, this could be regarded as an advantage or a disadvantage.

• Potential tax charge on withdrawals

Although you benefit from tax relief when you make contributions into a SIPP and any growth is tax-free, you can only take 25% of your SIPP fund tax-free (subject to a maximum of £268,275). Withdrawals after that are taxed as income.

Conversely, if you left your investments outside the SIPP wrapper, there is no income tax to pay when you cash them in. However, any growth is subject to income and capital gains tax.  

Check out our bed and ISA service

If you are looking for a more tax-efficient home for some of the investments in your trading account, you may also want to consider a Bed and ISA.

This works on exactly the same principle as Bed and SIPP but we take care of some of the steps for you. All you need to do is choose Bed and ISA from the cash & transfers menu and select the investments you want to move to your ISA, and we’ll take care of the rest of the process.

Learn more: Bed and ISA