Do you pay inheritance tax on a SIPP?

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February 9, 2022 in SIPP

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The following is intended to introduce what happens to your SIPP when you die, but it is a complex area, and tax rules are subject to change. If you are unsure how this could impact you or your beneficiaries, we recommend talking to a regulated financial adviser. You can find a regulated adviser at

UK inheritance tax rules can be updated and changed at any time. But currently, in 2022 the following applies:

The proceeds from a SIPP pension do not form part of your estate for inheritance tax purposes if they have remained uncrystallised at the time of your death.

However, if you have taken the 25% tax free lump sum out of the SIPP and this is in your bank account when you die, this cash would be part of your estate for inheritance tax because it has been removed from the protection of the SIPP.

When you die, any money left in your SIPP can usually be passed to your heirs free of inheritance tax. Any withdrawals they then make will usually be tax free if you die before 75. If you die when 75 or older, any withdrawals will be taxed as their income.

If you are under 75 when you die, then a 2 year rule applies when your SIPP provider is notified of your death. Your beneficiaries must take action before the 2 years are up. Make sure that they know this.

It is vital that you keep the beneficiaries of the SIPP up to date in the same way you do for your will. You can do that by completing an Expression of wish form. The trustee of the SIPP will ultimately have discretion as to who any death benefits are paid, but will take wishes into account.

What happens when I inherit a SIPP ?

If your SIPP inheritance came from someone under 75 years of age, you must take action in the 2 years after their death. To find the best course for your circumstance, we strongly recommend that you speak with a regulated financial adviser. They will guide you to the right path for you. A regulated financial advisor local to you can be found here at

The money in the SIPP can be used to do 1 of 3 things:

  1. paid to you as a nominated beneficiary as a lump sum
  2. used as an ongoing pension to provide an income and benefit from leaving the money invested in a tax efficient wrapper.
  3. Transferred into a new Pension product

Are the SIPP inheritance tax rules different if I am over 75 years old?

Yes, Once the original SIPP holder is over 75 years old and dies. Then the SIPP inheritance tax rules change. Any withdrawal from the SIPP by your Beneficiaries will be treated as income at their marginal rate.

The recipient of your gift can be any age. This age rule relates to yourself, not them.

I have an inherited SIPP can I pass this on?

Yes, a SIPP can be inherited multiple times.

For example

  • A Grandfather leaves £100K cash in a SIPP at his death
  • His Daughter inherits the SIPP and draws £25K in money from the SIPP before she too dies
  • The Granddaughter can then inherit £75K from the original Grandfather’s SIPP
  • This can continue down the generations until all the funds in the SIPP have been removed

Can I leave my SIPP to multiple people or charities?

Yes, a SIPP or parts of a SIPP can be left to lots of different beneficiaries. For example, you can nominate for a percentage of the SIPP to go to your favourite charity, with the remainder paid to a family member. Or you split the SIPP so all of your grandchildren receive an equal share of the SIPPs value.

If you have a mixed SIPP portfolio, you may request for the property element to go to one person, any shares to a 2nd person, any remaining cash to a 3rd person, or any combination of the above.

If you are not sure how to best help your beneficiaries, we recommend that you have a conversation with a regulated financial advisor before making any decisions. You can find an advisor local to you here

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