How CGT/property sale impacts income and pension contributions

older_and_no_wiser

I recently retired (in Sept) after dropping my weekly hours from June. My total income for this financial year - according to the P45 I got - is £19,000.

I understand that I can only contribute up to my annual income into my SIPP to be eligible for the the government tax top-up. I've currently contributed £7,000, so that leaves around £12,000.

I have not yet crystallised any part of my SIPP. I am not expecting any other income this financial year - or beyond.....apart from.....

I jointly owned my father's flat and am now in the process of selling it as he passed away at the end of last year. I will be liable for CGT on this as there was a gain in value since it was purchased back in 2012. This is a total gain of around £80,000 since purchase. I'm not liable for the total gain as it was originally jointly owned by myself and both my parents and then myself and my father when my mother passed away in 2018.

I will owe around £7-8K in CGT tax (I will be asking a professional to assist with this calculation as and when).

My question is; as the sale of the property counts as income for this year (according to what I've read online), does this now increase how much I can contribute to my SIPP and the amount of "tax bonus" I can get from the government on SIPP contributions? If so, how much extra on top of the £12,000 I mentioned above? Is the full sale price of the property classed as income - or just the capital gain?

Dazed_and_C0nfused

older_and_no_wiser said:

I recently retired (in Sept) after dropping my weekly hours from June. My total income for this financial year - according to the P45 I got - is £19,000.

I understand that I can only contribute up to my annual income into my SIPP to be eligible for the the government tax top-up. I've currently contributed £7,000, so that leaves around £12,000.

I have not yet crystallised any part of my SIPP. I am not expecting any other income this financial year - or beyond.....apart from.....

I jointly owned my father's flat and am now in the process of selling it as he passed away at the end of last year. I will be liable for CGT on this as there was a gain in value since it was purchased back in 2012. This is a total gain of around £80,000 since purchase. I'm not liable for the total gain as it was originally jointly owned by myself and both my parents and then myself and my father when my mother passed away in 2018.

I will owe around £7-8K in CGT tax (I will be asking a professional to assist with this calculation as and when).

My question is; as the sale of the property counts as income for this year (according to what I've read online), does this now increase how much I can contribute to my SIPP and the amount of "tax bonus" I can get from the government on SIPP contributions? If so, how much extra on top of the £12,000 I mentioned above? Is the full sale price of the property classed as income - or just the capital gain?

I don't know what you've read online but it doesn't count as income, its a Capital Gain.

I presume you realise the £19,000 is the gross contribution allowed, inclusive of basic rate tax relief (when you use the relief at source method).

Pension contributions can sometimes mitigate the CGT payable (by virtue of increasing the available basic rate band).  But you can only know if that would be useful to you once you know the amount of the gain that will be subject to CGT.

Linton

No, you cant use the proceeds of selling a flat to justify pension contributions.  Pension contributions are limited by "earned income" ie income from employment.  Selling assets does not give you earned income.

older_and_no_wiser

Thank you both. Seems like I misunderstood the tax rules on this. You've cleared that up really well.