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  • Tax

    Self employment / SIP / Property Income

    Having spent the last few years working on a 'master plan' to close down my non-property business and exist solely on income from my 3 rental properties (all owned in my own name.) I hadn't taken these steps lightly as you can imagine having researched many aspects.

    However I had a brief meeting with my accountant before xmas and was informed of one nugget of information that I hadn't realised; I will loose my tax relief on contributions to my (small) SIP. Also became aware the NI contributions can potentially cease. I am a basic rate tax payer.

    I have spent a few minutes on the googles and have struggled to find any reference to losing SIP tax relief in situations such as mine, let alone any potential work around, if one exists. Presuming many of you have also stepped from (self) employment income to solely receiving property / land income, my question is thus - Is my accountant correct and do I have any other option other than just loosing the SIP tax relief? I am just looking for a bit of background knowledge/guidance before I speak to a local pension advisor.

    Many thanks in advance

    Richard

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    Hi I think what your saying is you fund a SIPP from your self employment earnings and you going to stop being self employed and live off your BTL income

    If I have it correct I would say this

    It all comes down to Nett Relivent Earnings ie to fund a SIPP you need to be employed or self employed to gain the Tax Relief  up to a Max of 40K

    If you are no longer self employed or employed you cant contribute going forward

    But you may be able to use past tax years to still pay into the SIPP but it all depends on how much you have paid in from your earnings

    There is a small allowance of £3600 pa gross that you can fund your SIPP even if your not working

    BTL income is not Net relevant earrings if the property is in your own name

    I would seek the advice of an IFA and see if you can go back over the tax years and mop up unused SIPP allowance s

    Professional advice could work in your favour so seek out the info

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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.


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    Any earned income can go straight into your SIPP pre-tax but investment income can't. My post-employment master plan is to lead hiking groups as a self employed outdoor instructor and that income will go straight into the SIPP tax free whilst I live off the property income. But plan B would be to hold some property in a SPV as that income can feed the SIPP too.

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    Richard,

    You are correct on both counts.  Rental income is classed as investment income.  Pension tax relief is only available on contributions made from earnt income.

    If your only income in investment income or interest you can still pay in £2,880 into you pension and HMRC will top in up with £720 making the gross contribution £3,600.  (This is a free £720, so worth taking advantage of).

    You will not be required to pay NI contributions on you rental income, so in order to keep your NI record up-to-date you can pay voluntary NI contributions, approx £760.00 for 2018/19.

    Fred

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    Thanks all for the advice - very helpful.

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