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The Self-Invested Personal Pension (SIPP) was designed to give pension savers control. Where a traditional personal pension typically offers a limited menu of insurer-managed funds, a SIPP opens up the broader investment universe: direct equities, investment trusts, exchange-traded funds, bonds, commercial property, and more.
But the latitude is not unlimited. HMRC draws clear lines around what a SIPP can and cannot hold. Breaching those lines — sometimes through ignorance rather than intent — can result in severe tax penalties. Understanding the boundaries is as important as understanding the opportunities.
Standard Permitted Investments
Most SIPPs on mainstream platforms allow the following:
Collective investment schemes: unit trusts, open-ended investment companies (OEICs), and their equivalents. These are the workhorses of most SIPP portfolios — diversified, professionally managed, available in passive (index-tracking) and active forms.
Exchange-traded funds (ETFs): listed funds that trade like shares and typically track an index or sector. ETFs have become a preferred vehicle for cost-conscious SIPP investors, offering access to global markets at very low ongoing charges (0.05% to 0.20% is common for broad index ETFs).
Investment trusts: closed-ended listed companies that invest in a portfolio of assets. Investment trusts can trade at a discount or premium to net asset value. Popular categories include UK equity income, global equity, infrastructure, and private equity.
UK and international listed equities: direct shareholdings in companies listed on recognised exchanges. Most major platforms allow shares on the London Stock Exchange, NYSE, NASDAQ, and major European exchanges.
Government bonds (gilts) and corporate bonds: fixed income securities available directly or through bond funds.
Cash: held as deposits within the SIPP wrapper. Interest is earned free of income tax.
Advanced Permitted Investments (Full SIPPs)
A "full SIPP" operated by a specialist provider can typically also hold:
Unlisted (unquoted) shares: shares in private companies. HMRC permits these, but providers vary in whether they will administer them. Holding unlisted shares in a SIPP requires careful valuation and compliance.
Commercial property: arguably the most powerful use of a SIPP for business owners (see below).
Physical gold: HMRC allows investment-grade gold bars and coins (those approved by the London Bullion Market Association) to be held in a SIPP, provided they are stored in an approved custodian facility and not accessible to the member personally.
Loans to commercial property: certain types of secured lending against commercial property can be held within a SIPP.
What Is Not Permitted
Residential property is the most frequent source of confusion. You cannot hold a property that you or a connected party lives in — whether that is your own home, a buy-to-let rented to a family member, or a holiday cottage. The rules apply to both direct ownership and ownership through a company if that company is "connected" to the member.
Tangible moveable property: art, wine, classic cars, jewellery, antiques, stamps, coins (other than HMRC-approved gold). These assets are specifically excluded as SIPP investments under HMRC rules. Attempts to hold them attract a tax charge of typically 40-55% of the asset value.
Any asset offering personal benefit to the member or a connected person: the fundamental test is whether the investment provides a benefit outside the pension wrapper. Renting a commercial property to your own business at below-market rate, using a SIPP-owned property personally — these breach the rules even if the underlying asset type would otherwise be permitted.
Commercial Property in a SIPP: A Strategy for Business Owners
The ability to hold commercial property in a SIPP is one of the most valuable features for self-employed people and business owners. The structure works as follows:
- The SIPP acquires a commercial property — this could be the member's own business premises, a warehouse, an office suite, or any other qualifying commercial space.
- The business occupying the property pays rent to the SIPP at a market rate (a formal lease must be in place and the rent must be independently validated).
- Rental income accumulates within the SIPP tax-free.
- Any capital growth on the property is sheltered from capital gains tax within the SIPP.
- On retirement, the property can be sold, with proceeds remaining in the pension and available for income drawdown or annuity.
For a profitable business with surplus cash, contributing to a SIPP to purchase commercial premises achieves several goals simultaneously: it removes value from the business estate (reducing IHT exposure), provides pension funding with tax relief, and generates a rental income stream for the pension.
There are important caveats. VAT and Stamp Duty Land Tax (SDLT) apply to commercial property purchases — VAT can sometimes be reclaimed via the SIPP if it opts to tax the property, but this requires specialist tax advice. The SIPP may need to borrow (known as in-specie borrowing) to purchase the property if the fund is insufficient. A SIPP can borrow up to 50% of its net asset value for investment purposes.
The Model Portfolio Approach Within a SIPP
Some SIPP investors prefer a managed approach: rather than selecting individual investments, they instruct a discretionary investment manager to run a portfolio within the SIPP. The SIPP trustee or platform holds the assets; the investment manager has day-to-day discretion.
This can work well, but the cost structure demands scrutiny. The total cost typically includes:
- SIPP platform charge: 0.10% to 0.45% per year depending on platform and fund size
- Investment management charge: 0.50% to 0.75% per year for a discretionary service
- Underlying fund costs (OCF): 0.05% to 0.75% depending on whether passive or active funds are used
A combined cost of 1.00% to 1.50% per year is common for a managed SIPP. At 1.50% per year, a £500,000 SIPP pays £7,500 in charges annually — a figure that must be justified by the quality of advice and investment outcomes.
The "Self-Invested" Question
Many SIPP holders use their account purely for mainstream funds and never exercise any of the self-invested flexibility. In practice, a SIPP holding only Vanguard LifeStrategy funds is functionally identical to a standard personal pension — with potentially higher charges for the SIPP administration.
It is worth asking: why do you specifically need a SIPP rather than a personal pension or stakeholder pension? Valid reasons include:
- You want to hold commercial property
- You want access to a wider range of investment trusts or direct equities
- You have a specialist investment requirement (gold, unlisted shares)
- Your current employer's scheme offers poor investment options and you want a personal SIPP to consolidate into
If none of these apply, a simple personal pension or workplace scheme may be more appropriate and cost-effective.
Choosing the Right SIPP Platform
The SIPP market is large and fragmented. Platforms vary considerably in cost structure, investment range, and administration capability.
For low-cost passive investors: platforms such as Vanguard Personal Pension, InvestEngine, and similar fintechs offer very low charges (often 0.15% to 0.25% per year all-in) but restrict investment to their own fund range. Suitable for straightforward index-fund strategies.
For broader investment choice: interactive investor, AJ Bell, and Hargreaves Lansdown offer a wide range of funds, investment trusts, and direct equities. Charges vary; flat-fee platforms become cheaper as the portfolio grows, while percentage-fee platforms are cheaper for smaller pots.
For commercial property: specialist operators including Dentons Pension Management, Barnett Waddingham, and Curtis Banks administer full SIPPs capable of holding commercial property. These typically involve higher administration charges and require specialist legal and SDLT advice. They are most appropriate for business owners with a specific commercial property strategy.
For maximum flexibility: a Small Self-Administered Scheme (SSAS) — available to employers with up to 11 members — offers the broadest investment powers, including employer-related loans and commercial property. SASs are more complex and expensive to administer but can be appropriate for multi-director businesses with a significant pension funding programme.
International Considerations
For UK expats or internationally mobile investors, the SIPP investment options must be considered alongside currency exposure and jurisdiction. A UK SIPP can hold international equities, but the pension itself is a sterling-denominated vehicle. A retiree drawing from a SIPP while living in the UAE or Thailand will need to manage the currency conversion from sterling.
Where the long-term objective is to draw pension income in a non-sterling jurisdiction, a QROPS (Qualifying Recognised Overseas Pension Scheme) in the destination country may offer a better currency match, though the decision involves many factors beyond currency alone.
Compliance Note
This article is for general information only and does not constitute regulated financial advice. HMRC rules on permitted SIPP investments are complex and subject to change. Tax charges for holding non-permitted assets can be severe. Always confirm permitted investments with your SIPP provider before proceeding. Global Investments is an independent international advisory firm and is not itself authorised by the FCA; where UK-regulated advice is required it is provided by an FCA-authorised specialist we work with. Seek professional advice tailored to your personal circumstances.
How Global Investments Can Help
Choosing the right SIPP structure and investment strategy is not straightforward, particularly for internationally mobile individuals balancing UK pension rules with overseas tax obligations. Our advisers work with clients to assess whether a SIPP, a full SIPP, a SSAS, or a QROPS best fits their circumstances, and to design investment strategies that align with their retirement income needs. Contact Global Investments to discuss your options.
This guide is for general information only and does not constitute financial, legal or tax advice. Pension rules, tax rates and programme details change; verify current requirements with a qualified and FCA-regulated pensions adviser before acting. Pension transfers involving defined benefits over £30,000 require regulated advice.
