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  • Tax

    Pension contributions for landlords

    Hi all, I’m trying to decide if it would be prudent to put some more money into my existing pension from my previous employment.

    There are two reasons behind this: 

    1. My pension pot has been performing reasonably well  

    2. I wondered if this may bring down my overall “taxable income” to reduce my tax payments on rental income

    My SOLE income now is from rental properties, in this case, would my pension contributions be tax deductible against my rental income at all?

    Thank you

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    Thanks Vanessa, so sounds like from Peter Jackson’s posting the second thread, that sole rental income (with no other employment income) would not be deductible against pension contributions as it does not constitute “relevant earnings”?

    Also sounds like I could contribute 3600 a year to take advantage of 20% tax relief from the government, any additional contributions would afford no tax advantages to me?

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    If you are at present a higher rate tax payer you can still claim the higher rate tax on the £3600 I personally think pensions only really work well for higher rate tax payers or directors schemes best of luck DL

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Actuallly they also work quite well for non-taxpayers. age 55 or over Someone who is earning very little can pay in £2880 and take out £3600 - effectively a gift of £720 from the government - significant if you are earning that little.

    As a basic rate taxpayer I could make £180 this year that way, but it would trigger MPAA whch would  limit how much I can pay in from my company once I stop reinvesting in new properties.

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    Yes that's how I read it too.

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    Rental Income does not count as relevant income for pension contributions.  This means that you can pay a maximum of £2880, to attract tax relief, grossed up to £3600 by HMRC.  If you have excess money to invest put it in a stocks & shares ISA (mirror you pension investments if that's what you want).  This way all the income and Capital Gains will be tax free.  If you put any excess into your pension you will be taxed on, probably, 75% of the amount you take out.

    > would my pension contributions be tax deductible against my rental income at all?

    No, not exactly.  The gross amount paid into your pension, up to £3600, is taken into account when calculating you adjusted income.  The adjusted income is then used t calculate you tax liability

    Hope this helps.

    Fred.

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    I like this idea of mirroring my pension portfolio in a share ISA, presumably I just put in 20k (let’s say) a year and build it up over time, and there is no tax to pay on income or gains whatsoever?

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    You will have to pay the tax due on the profit you made from your property income but then you can contribute any amount if you have a private pension like a SIPP and your provider will then claim the appropriate tax relief from HMRC on your behalf.

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    Thank you for your collective input, very helpful. I will at least utilise the 3600 gross to get the tax relief. Re last poster I have an aviva pension account, not familiar with SIPP, does it make a difference or is it still 3600?

    How is rental income not considered “relevant earnings” for pension contributions, is it assumed that it is passive income, so you are not having to “work for it”? I would very much refute that as I work bloody hard for my rental income. If someone did my “job” in a property manager role, they would get up to higher of 40k and their earnings of allowance, but because I’m not salaried per se, I don’t get any of this benefit bar 3600?


    am I missing something?

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    notagenius, SIPP is Self Invested Personal Pension which will be the same as your Aviva one.I think you can contribute as much as you want into the Aviva pension and they will then claim the tax relief on your behalf.I don`t think the source of the money is relevant but phone Aviva and confirm.

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