relevant income for pension contributions

sneekymum

I'm trying to calculate the biggest pension contribution possible to get my mother down the 40% tax bracket (as a contribution to count for the last tax year).

Her relevant income is all from commercial property rental which is taxed on what was due and not what was actually received. Her tennant missed three months rent last year although she'll still have to pay tax on the full amount due.

Which figure is relevant for calculculating a 40% pension contribution (she's 67) "rent due" (on which tax will be paid) or "rent received" ?

Debt_Free_Chick

It's generally "earned" income. Can you give more information about her situation? Does she take a salary from a property investment company? What does she declare on her tax return as earned income? Is her income classed as Investment Income?

sneekymum

No its real property (4 real properties) with real people. Its taxed as income from a rental business - self-employed earnings.

Debt_Free_Chick

sneekymum wrote:

No its real property (4 real properties) with real people. Its taxed as income from a rental business - self-employed earnings.

Profits chargeable under Schedule D immediately derived from a trade, profession or vocation are allowed as Relevant Earnings for the purposes of personal pension contributions.

Provided Mother is being assessed for income tax from the rental income under Schedule D, with the income deemed to be that arising from a trade, profession or vocation, then that income can be the basis for her pension contribution. The amount on which the contribution is based, should be the amount assessed for income tax, as declared on her tax return.

HTH

sneekymum

That's good - so at least she'll be getting some benefit from that rent she didn't receive but still pays tax on.

Anyone reading this who's thinking of renting out property - domestic or commercial - should be aware that if the rental income is over £15,000 a year then tax will be due on it whether or not the money's actually received. (I think renting out a holiday home may is exempt from this - not sure about that one though.) Under £15,000 then you can work on a cash-received basis.