Reducing CGT with a pension?

HotPotato

Hi, I'm about to sell a rental property and realise a capital gain.

I was just wondering if there is any way a pension can be used to reduce the CGT liability?

I should say at this point that I don't have any form of pension at all (and know less than nothing about them), so if this is the case it would be a decent jump start since I'd been thinking about starting one for a while...

Any thoughts and ideas welcomed!

booksurr

won't work
money into a pension has to be from "earned income" sources liable to income tax since a pension shelters it from income tax.

QED money liable to CGT is ineligible as a pension would not shelter it from CGT

Spidernick

Surely it depends on the level of earned income and the general level of income? The taxable gain won't change, but the OP may be able to make some/more of his/her gain liable to CGT at 18% rather than 28% if he/she is able to put money into a pension, or am I missing something?

xylophone

https://www.gov.uk/capital-gains-tax/work-out-your-capital-gains-tax-rate

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Making a pension contribution could reduce his adjusted net income so that he would pay as little as possible CGT at 28%?

ScoobyZ

Good article here:

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11514536/Empty-your-pension-and-invest-in-buy-to-let-No-do-it-the-other-way-round.html

chucknorris

ScoobyZ wrote: »

Good article here:

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11514536/Empty-your-pension-and-invest-in-buy-to-let-No-do-it-the-other-way-round.html

The article is giving incorrect information:

This is how it would work. If you sell your buy-to-let and put the proceeds in a pension, you get tax relief on the contributions. Assuming that you pay the higher rate of income tax, the sale will trigger a capital gains tax bill at 28pc, the higher rate. But you get all this back and more when you put the money in a pension – in fact you benefit from 40pc tax relief.

As others have said above, you cannot get tax relief on money invested in a pension that has come from selling a property, it has to be relevant income. Obviously it would on a smaller scale, if someone invested a small amount in their pension (that came from their salary) and replaced it with the property sale proceeds.

ScoobyZ

Yep good point. Also is it incorrect in that if you use you income to top up pension is the saving only 28% not the full 40%

pjread

I think the relevant questions are;
* What's your income tax position for the tax year?
* How big is the gain in relation to your taxable income?

Potentially there is the income tax relief (at up to 45%, or at least 'probably a higher rate than the CGT' for most people) and an effective +10% 'bonus' gain by reducing CGT rate by the sound of it