This investing tactic can turn a Self-Invested Personal Pension (SIPP) into a lifelong passive income-generating machine with just £25k. Earning money while sleeping’s a proven strategy for achieving financial freedom. And for those seeking a life of luxury during retirement, building a lucrative income portfolio’s critical.
Unleashing the power of a SIPP While ISAs have plenty of tax advantages, they pale in comparison to a SIPP if chunky retirement income’s the goal. That’s because, unlike an ISA, SIPPs provide tax relief that can automatically inject more capital into a brokerage account. Let’s say an investor has £25k in the bank and is ready to kickstart a portfolio.
If they’re in the Basic Rate income tax band, that means they’re entitled to a 20% refund on any deposit made into a SIPP. So £25k would actually turn into £31,250. That’s an extra £6,250 just for using this special investing account.
Obviously, this comes with several caveats. For one, investors can’t take their money out until they turn 55 – a threshold that’s likely to increase. And while capital gains and dividends are tax free, income taxes will eventually re-enter the picture when the time comes to start making withdrawals.
Nevertheless, building wealth in a tax-free environment with relief is an incredibly powerful advantage that most investors aren’t capitalising on. Investing £31,250 in UK shares Once a SIPP’s set up and funded, the big question becomes where to inves.