Can I avoid Capital Gains by paying proceeds of house sale into a pension fund?

fizbomb7

I own a property which I have never lived in & have rented out for 20 years & I now wish to sell it.
I have no other pension & it has always been my intention to live off the profits from the sale when I retire. However I have been told that I will have to pay Capital Gains tax on the procceeds of the sale.
Please can you tell me if I can legally avoid this if I pay the proceeds straight into a pension fund? (I am a basic rate taxpayer)

noh

No you can't.
It is the sale of the property that creates the potential CGT liability.

dunstonh

Pensions are linked to income tax. The physical property is linked to capital gains tax. So, no you cannot.

CannySaver_2

Hi

Whilst the answers given so far are technically correct there is an opportunity for you to do some tax planning here if you have pensionable earnings from employment or self employment.

When you sell the property you will of course need to pay Capital Gains Tax. The gain is calculated by taking the sale price, deducting the purchase price plus the costs of aquiring and selling the property, you can also offset losses here. The gain is then taxed at 18% or 28% depending on your personal tax position.

Once you have the net proceeds i.e. after the tax has been paid, you could then, providing you have pensionable earnings pay a lump sum into a pension.

The money you pay into a pension, subject to having sufficient pensionable earnings, would then attract tax relief at 20% or 40%.

The maximum you can pay into a pension in the current tax year is £50,000, although carry forward can now be used to good effect.

Whilst you are dealing with two different taxes here i.e. Income Tax and Capital Gains Tax, by bolting the two together, assuming you have pensionable earnings, you can produce an interesting soultion.

Hope this helps.

The Canny Saver

jamesd

You should read about letting relief of up to £40,000 from Which and HMRC.

Have you been allowing for expenses of maintenance and such in your normal tax returns over the years? If not then you should perhaps discuss that with an accountant familiar with residential letting as well.

Note that letting relief is only available if you have had the property as your main home. The potential gains from the three years of Principal Private Residence relief and the Letting relief can be huge and it may be the case that your best option is to genuinely move into the property for six months, telling HMRC and registering for Council Tax and voting at the new place.

A good accountant should be able to advise you on all of those things for a price of only a few hundred Pounds. Cheap at the price since it can save you tens of thousands.

gadgetmind

Other options include ensuring the property is in names of self plus spouse (if relevant to you), looking at moving overseas for at least five years (but check CGT situation in country of choice!) and perhaps also look at Enterprise Investment Schemes.

This is a specialist area, to say the least!

atush

There are a few ways mentionned above to help lower your CGT. One is if you are a higher rate taxpayer, pay into a pension enough to bring you down to the lower rate.

Then, if you are married you can transfer half the property to your spouse, so that each of you have a CGT ememption.

Third, instead of selling now you could move in for a few years and then sell it. Then you would qualify for primary residence- but you would have to srite to HMRC and declare the former rental property is now your main residence.