Does this count as abuse of the tax system under HMRC rules?

LookingToTheFuture_2 · 27 June 2015 at 9:28AM

A friend of mine has just bought a BTL property and has asked if I can help with the book keeping and tax returns.

A bit of background - he has always been really good with money and through years of saving he and his wife saved up enough to buy the rental property outright. They aren't earning huge wages but have managed to live on less than one income for years and save the rest. He has also increased his AVC pension contributions to the extent that he isn't paying any tax on his salary as the payments are deducted via a salary sacrifice scheme. The total salary amount on his P60 shows the figure after pension deductions. They also have various high interest current accounts.

They are hoping to retire in their mid 50s which is only a few years away. I have suggested to him that he could increase his AVC payments to almost 100% of his salary rather than adding to his cash savings each month. The rental income is about £6000 per year so it appears that he would end up below the personal tax allowance so would actually not be liable for any tax at all.

Have I got this right? Or would the Inland Revenue count paying so much into a pension as a form of tax avoidance when there is income from another source?
For clarification the BTL property was put into his sole name to simplify the tax situation.

Thanks in advance.

antrobus · 27 June 2015 at 10:33AM

LookingToTheFuture wrote: »

.... I have suggested to him that he could increase his AVC payments to almost 100% of his salary rather than adding to his cash savings each month. The rental income is about £6000 per year so it appears that he would end up below the personal tax allowance so would actually not be liable for any tax at all.

Have I got this right? ....

You ain't gonna like this.

But might I suggest, that if do want to go around offering tax planning advice to people, perhaps it might be an idea to get some kind of qualification in that area?

http://www.tax.org.uk/students_qualifications/newctastudents/CTA%20Qualification

LookingToTheFuture_2 · 27 June 2015 at 10:47AM

Thanks, but I am not "offering tax planning advice". I am offering to help him with his record keeping for his tax return.

My suggestion to him to pay more into his pension was that it could provide a better return in the long run than adding to cash savings as he has already reached the maximum for earning interest on his current accounts. I did not "advise" it as a tax avoidance scheme, it was only as an afterthought that I wondered about the tax implications.

I am well aware that offering financial advice or tax planning is a specialised profession and I am not trying to do that.

LookingToTheFuture_2 · 30 June 2015 at 3:23PM

Is anyone able to help with my query?

zygurat789 · 30 June 2015 at 3:47PM

There are no limits to how much you may pay into a pension fund, however, there are limits to how much you will get tax relief on. If you are not getting tax relief on the pension contributions then they fail to produce such a good return, in fact it would be better to put the money into an ISA because then the income will be tax free.
A word of warning, as things stand now, HMRC may look at their assets and their income and will conclude that the former is not compatible with the latter and may start an investigation.