Can I reduce my CGT by making a pension contribution?

macman

Not directly. It reduces your taxable income, so you have more of the threshold available within the 18% band. The result is the same.

Ginger_Winner

 macman said:

Not directly. It reduces your taxable income, so you have more of the threshold available within the 18% band. The result is the same.

OK, that makes sense. I think I read that the limit for personal pension contributions is £40k but you can't contribute more than you earn...
So if I earn £8,800 PAYE and also have £10,000 rental income, would that mean I could contribute £18,800?

macman

No, because rental income  is not considered earned income, it comes under the income from property section. So you would be limited to £8.8K.

Jeremy535897

I think that, assuming no other pension contributions are made, the first £2,880 net contribution to the SIPP will be grossed up to £3,600 by the government (they pay in £720), and will reduce your tax bill on the gain by £360 as well, so for £2,520 net spend you get £3,600 in the pension fund.

You have to be careful here, though, because if you don't actually pay any income tax, any tax contributed by the government over the £720 will be charged on you.  But if you have PAYE income of £8,800, and rental income of £10,000, for example, and you paid £7,040 (£8,800 less 20% tax) into your pension scheme, instead of £18,800-£12,500= £6,300@20% = £1,260 income tax, you would pay no income tax, because although the amount the government puts into your pension is £1,760, which exceeds £1,260, £720 of that £1,760 is covered by the stakeholder exemption, and you get your CGT reduction of £880 as well. (These figures assume you are not resident in Scotland.) I think this is how it works, but I welcome any other observations, as I have never come across this situation before. I could be totally wrong.

Dazed_and_C0nfused

Providing they are within contribution limits relief at source pension contributions attract basic rate relief irrespective of whether any income tax has been paid or not.

So if the op has earnings of £8,800 and has not made any other contributions they could contribute £8,800 to a relief at source scheme.  Made up of £7,040 paid by the op and £1,760 basic rate tax relief added by the pension company.

A relief at source pension contribution increases the basic rate band (by £8,800 in this scenario) when it comes to calculating income tax due by however I do not know the impact this then has on CGT.

[Deleted User]

Aha - glad I wasn’t the only one to have some issues with this - couldn’t find out the answer but something rattled around in my brain. Asked jimmo this on another thread - hopefully the CGT sage will have an opinion. I suppose my point is - can you extend the basic rate band by paying pension contributions when the only use of the basic rate band is through CGT?

(jimmo - have a look at the thread on extension of basic rate band by making pension contributions. Not enough earned income to pay tax upon. Only tax payable is CGT. Too long out of this game to get my head around whether this can be done.)

Jeremy535897

Dazed_and_C0nfused said:

Providing they are within contribution limits relief at source pension contributions attract basic rate relief irrespective of whether any income tax has been paid or not.

So if the op has earnings of £8,800 and has not made any other contributions they could contribute £8,800 to a relief at source scheme.  Made up of £7,040 paid by the op and £1,760 basic rate tax relief added by the pension company.

A relief at source pension contribution increases the basic rate band (by £8,800 in this scenario) when it comes to calculating income tax due by however I do not know the impact this then has on CGT.

I thought the same, but I was concerned by this, because it doesn't say that you are OK if your contributions are equal or less than your earnings, but I said I might well be wrong:

"If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)"

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

But LITRG say:

"Pension tax relief for low earners: what problems might arise?

If you are a low earner (that is, if you earn below or only just above the personal allowance – £12,500 in 2020/21), you may wish to check which type of pension scheme you are in. If you are in a relief at source arrangement, the pension provider claims 20p tax relief back from HMRC for every 80p of your contribution received – no matter what the level of your earnings."

Dazed_and_C0nfused

gov.uk is wrong (and they seem reluctant to change it).

LITRG is correct however the level of earnings is a bit misleading without the rest of the article.  You are limited by your pensionable income.  So if profits or taxable pay is say £6,000 you can only contribute £6,000 and get tax relief (£4,800 personal contribution plus £1,200 basic rate tax relief).

Ginger_Winner

Many thanks for all the comments, I do appreciate the advice.  I have another question of a more pragmatic nature...
Once I have made my pension contribution, does anyone know where/if I should account for this in the HMRC 'Capital Gains Tax on UK Property' form? 
I am anxious about manually adjusting their auto-calculated figures, but appreciate that may be necessary as there is nowhere to specifically enter pension contribution details...
Or perhaps it might be easier or appropriate to complete this form without the pension contribution and pay the calculated CGT figure, and then fill in the pension details on the year end self assessment which presumably has sections to account for pension contributions?

macman

Only do the latter if you are happy to pay the full £22K CGT on the gain now (on a property disposal you only have 30 days to pay from date of completion) and then wait until your next self-assessment submission  to reclaim the overpayment. Which would be May at the earliest. 
The calculation tool on the CGT microsite does not, IIUC, have to be used as your 'workings to prove the calculation' evidence., though it's useful to do a dry run first. Once you go into the actual site and are logged in, you can upload your workings as a PDF, spreadsheet, Word doc, any way you like. And include evidence of the pension contributions with it, if made by then.
The pension contributions don't alter the amount of the gain, obviously They affect the taxable income, which you effectively enter manually, and so reduce the amount chargeable at the higher rate of 28%. 
The system isn't really interested in the amount of pension contributions for it's own sake, it simply needs to know what your adjusted taxable income is in order to split the CGT calculation correctly across the 2 rates.
If in doubt, log in and play with it: you can create a live draft and save it for I think 14 days: no need to actually submit it until you are ready, as long as you are inside the 30 days.