Can I reduce my CGT by making a pension contribution?

Ginger_Winner

macman said:

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.

Good advice... thanks!
I've got 10 days left before the CGT Submission  is due so will see if I can sort out the pension contributions this week. I will also have a play with the calculation tool today. With all the advice I've received on here, I feel like I now understand how this all works.

[Deleted User]

For those that are still interested I pumped the figures in to the self assessment portal. Without pension contributions the tax liability on a 92000 taxable gain with 8800 earnings is 22010. With a pension contribution of 8000, the liability is reduced to 21010. The basic rate band is extended by 10000 - the tax saving is1000.

Jeremy535897

It gave you a £10,000 extension despite earnings of only £8,800? Interesting. I would not have expected that. It sounds wrong. There are limited provisions for carry forward of unused allowance, but they don't apply if you don't have the earnings to cover them, so are only relevant where you pay and earn more than £40,000 in a tax year. See:
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

[Deleted User]

Jeremy535897 said:

It gave you a £10,000 extension despite earnings of only £8,800? Interesting. I would not have expected that. It sounds wrong. There are limited provisions for carry forward of unused allowance, but they don't apply if you don't have the earnings to cover them, so are only relevant where you pay and earn more than £40,000 in a tax year. See:
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

It did - I was surprised too! I input exactly 8800, 10000 pension and the CGT was calculated with a basic rate (18%) band of 47500. This was by actually completing a return ( for a client who no longer requires one) and subsequently deleting it.

I am sure that you remember the total income method and I would have expected a tax charge to be added back. Unless one can contribute 3600 plus earnings - not my field?

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

It gave you a £10,000 extension despite earnings of only £8,800? Interesting. I would not have expected that. It sounds wrong. There are limited provisions for carry forward of unused allowance, but they don't apply if you don't have the earnings to cover them, so are only relevant where you pay and earn more than £40,000 in a tax year. See:
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

It did - I was surprised too! I input exactly 8800, 10000 pension and the CGT was calculated with a basic rate (18%) band of 47500. This was by actually completing a return ( for a client who no longer requires one) and subsequently deleting it.

I am sure that you remember the total income method and I would have expected a tax charge to be added back. Unless one can contribute 3600 plus earnings - not my field?

You could test that by re-running with £15,000 pension I guess.

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

It gave you a £10,000 extension despite earnings of only £8,800? Interesting. I would not have expected that. It sounds wrong. There are limited provisions for carry forward of unused allowance, but they don't apply if you don't have the earnings to cover them, so are only relevant where you pay and earn more than £40,000 in a tax year. See:
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

It did - I was surprised too! I input exactly 8800, 10000 pension and the CGT was calculated with a basic rate (18%) band of 47500. This was by actually completing a return ( for a client who no longer requires one) and subsequently deleting it.

I am sure that you remember the total income method and I would have expected a tax charge to be added back. Unless one can contribute 3600 plus earnings - not my field?

You could test that by re-running with £15,000 pension I guess.

I shall - will post the results as soon as I can.

And - with no pension. Capital gains £37500 at 18% = £6750, 54500 at 28% = 15260 .
Total due £22010.

With pension 15000 (12000 plus 3000) : Capital Gains £52500 at 18% = £9450, £39500 at 28% = £11060. 
Total due - £20510.

Hence my queries last evening.
, 

[Deleted User]

Having further reflected no tax retained would be added back as the tax paid, albeit CGT, is sufficient. That doesn’t solve the issue with respect to the amount of pension one is able to make (not relevant to the calculation) but still I can’t fathom how the BR band can be extended by more than total earnings.

Jeremy535897

Perhaps it would be best if this were on the pensions forum:
https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning

Jeremy535897

purdyoaten2 said:

Having further reflected no tax retained would be added back as the tax paid, albeit CGT, is sufficient. That doesn’t solve the issue with respect to the amount of pension one is able to make (not relevant to the calculation) but still I can’t fathom how the BR band can be extended by more than total earnings.

I don't think it can. See section 190 FA 2004:

190Annual limit for relief

(1)The maximum amount of relief to which an individual is entitled under section 188 (relief for contributions) for a tax year is (subject as follows) the amount of the individual’s relevant UK earnings which are chargeable to income tax for the tax year.

(2)If the amount of the individual’s relevant UK earnings which are chargeable to income tax for the tax year is less than the basic amount, the maximum amount of relief to which the individual is entitled under section 188 for the tax year is increased by the difference between—

(a)the amount of the individual’s relevant UK earnings which are so chargeable, and

(b)the basic amount,

(so that, if the individual has no relevant UK earnings which are so chargeable, the maximum amount of such relief is the basic amount).

(3)Subsection (2) is subject to section 191(7) (limit on methods of giving relief to which individual is entitled by virtue of subsection (2)). [Net pay schemes]

(4)“The basic amount” is £3,600 or such greater amount as the Treasury may by order specify."

Section 194 addresses how relief is given, which is why it reduces the rate of CGT I think:

194Relief on making of claim

"(1)Where an individual is entitled to be given relief in accordance with this section in respect of the payment of a contribution, on the making of a claim the amount of the contribution may be deducted [F1in calculating the net income] of the individual for the tax year in which the payment is made [F2(see Step 2 of the calculation in section 23 of ITA 2007)].

(2)Where, after relief is given to an individual in accordance with this section for a tax year, an assessment, alteration of an assessment or other adjustment of the individual’s liability to tax is made, any appropriate consequential adjustments are to be made in relief given to the individual in accordance with this section.

(3)Where relief is given to an individual in accordance with this section for a tax year in respect of a contribution, relief is not to be given—

(a)in respect of the contribution under any other provision of the Income Tax Acts, or

(b)(in the case of a contribution under an annuity contract) in respect of any other premium or consideration for an annuity under the same contract."

[Deleted User]

There we go. Just like you said earlier, I also have never come across this scenario. Upon inputting there are no warnings - I guess that there is glitch in the system. But then again, how many case are there where there are low earnings, large CGT and excessive pension contributions?