Capital Gains Tax from property

SP47A

I have a query regarding capital gains tax. 

I have read on line that making a pension contribution into a personal pension plan can help to reduce CGT.

For context - my partner has a rental property which is in the process of being sold - bought for £125k about 20 years ago, selling at £385k, with purchase/selling fees and allowing for Private Residence Relief and CGT allowance if £6k, he will make approx £230k profit. 

His total gross income is £62k so he is in the higher tax bracket, therefore CGT rate of 28% will be applied resulting in a CGT bill of £64.4k. 

If we pay £12k into his pension plan, therefore keeping within the 20% income tax band, will the CGT rate applicable then be at 18% and so reducing the CGT bill to £41.4k. Plus benefitting from tax rebate on the pension contribution and reduced income tax. 

Is there a limit as to how much you can reduce CGT by making pension contribution?

I appreciate that this is a really nice problem to have, but following my partner’s recent heart attack at 55, we are trying to put all financial things into place so we can reduce his working hours and stress. 

Your advice would be greatly appreciated. 

[Deleted User]

 If he puts in £9000 into his personal pension plan (grossed up to £12000) he would start paying higher rates of tax on any income above £62270 as opposed to 50270. His PAYE income would all be charged at the basic rate. 

He already earns £62000 and the CGT would be charged at the higher rate. 

Incidentally, can the sale be put off until after 6th April when the higher rate of CGT decreases to 24%?

sheramber

Capital Gains TaxAllowance reduces to £3000 from 6 April 2024.

SP47A

thanks for the comments. Unfortunately we confirmed a completion date before the announcement that CGT higher rate was being reduced- could have saved approx £10k🤪. 

[Deleted User]

SP47A said:

thanks for the comments. Unfortunately we confirmed a completion date before the announcement that CGT higher rate was being reduced- could have saved approx £10k🤪. 

Definitely THE surprise in the budget. Sod’s law!

Dazed_and_C0nfused

[Deleted User] said:

 If he puts in £9000 into his personal pension plan (grossed up to £12000) he would start paying higher rates of tax on any income above £62270 as opposed to 50270. His PAYE income would all be charged at the basic rate. 

He already earns £62000 and the CGT would be charged at the higher rate. 

Incidentally, can the sale be put off until after 6th April when the higher rate of CGT decreases to 24%?

The theory is correct but adding £9,000 to a relief at source pension would only be a gross contribution of £11,250, not £12,000.

You would need to add £9,600 to get a gross contribution of £12,000.

[Deleted User]

Dazed_and_C0nfused said:

[Deleted User] said:

 If he puts in £9000 into his personal pension plan (grossed up to £12000) he would start paying higher rates of tax on any income above £62270 as opposed to 50270. His PAYE income would all be charged at the basic rate. 

He already earns £62000 and the CGT would be charged at the higher rate. 

Incidentally, can the sale be put off until after 6th April when the higher rate of CGT decreases to 24%?

The theory is correct but adding £9,000 to a relief at source pension would only be a gross contribution of £11,250, not £12,000.

You would need to add £9,600 to get a gross contribution of £12,000.

Whoopsadaisy!

Jeremy535897

Read this. It may mean you have longer to pay the tax:
https://www.accountingweb.co.uk/any-answers/residential-property-sale-completes-31-march-2024