Can profits from second home be contributed to personal pension - to lower capital gain tax?

JonMitchell

Hi

Both my wife and myself have a BTL rental property that we are using for retirement but considering selling it now as needed to release the cash from it.

There will be capital gain tax to be paid but wonder if we are allowed to use the profits from the sale to be directed into our own personal pension, therefore liable for lower capital gain tax?

Eg.     Rental property purchased             =    £100K
           Sold value                                      =    £400K
           Legal/EA costs, previous SDLT      =    £10K

           Gross profit liable for tax =  £290K
  
Have 30 days on completion to pay liable tax

            Are we allowed to use, eg. £100K, £50K each for wife and myself put into personal pension (SIPP)

            Total profit liable for tax = £190K

Not sure if this is at all plausible. We do not have an accountant, so have no one to ask really. 

Thanks 

housebuyer143

I don't believe so, no. This would be a huge loophole if it was.

Dazed_and_C0nfused

JonMitchell said:

Hi

Both my wife and myself have a BTL rental property that we are using for retirement but considering selling it now as needed to release the cash from it.

There will be capital gain tax to be paid but wonder if we are allowed to use the profits from the sale to be directed into our own personal pension, therefore liable for lower capital gain tax?

Eg.     Rental property purchased             =    £100K
           Sold value                                      =    £400K
           Legal/EA costs, previous SDLT      =    £10K

           Gross profit liable for tax =  £290K
  
Have 30 days on completion to pay liable tax

            Are we allowed to use, eg. £100K, £50K each for wife and myself put into personal pension (SIPP)

            Total profit liable for tax = £190K

Not sure if this is at all plausible. We do not have an accountant, so have no one to ask really. 

Thanks 

AIUI there can be some benefit to doing this.

But it doesn't change the amount of the gain that is taxed, it increases the basic rate band available.

You would still have to comply with the pension contribution limits (Capital Gains don't count) and the benefit would be nothing like what you have suggested.  But it may help.

Try a Google of CGT tax rates/bands.

JonMitchell

housebuyer143 said:

I don't believe so, no. This would be a huge loophole if it was.

Not trying to seek a loophole, just trying to understand what can and cannot be done.

JonMitchell

Dazed_and_C0nfused said:

JonMitchell said:

Hi

Both my wife and myself have a BTL rental property that we are using for retirement but considering selling it now as needed to release the cash from it.

There will be capital gain tax to be paid but wonder if we are allowed to use the profits from the sale to be directed into our own personal pension, therefore liable for lower capital gain tax?

Eg.     Rental property purchased             =    £100K
           Sold value                                      =    £400K
           Legal/EA costs, previous SDLT      =    £10K

           Gross profit liable for tax =  £290K
  
Have 30 days on completion to pay liable tax

            Are we allowed to use, eg. £100K, £50K each for wife and myself put into personal pension (SIPP)

            Total profit liable for tax = £190K

Not sure if this is at all plausible. We do not have an accountant, so have no one to ask really. 

Thanks 

AIUI there can be some benefit to doing this.

But it doesn't change the amount of the gain that is taxed, it increases the basic rate band available.

You would still have to comply with the pension contribution limits (Capital Gains don't count) and the benefit would be nothing like what you have suggested.  But it may help.

Try a Google of CGT tax rates/bands.

Agreed, personal pension is up to 100% of individual salary for that year as far as I understand from the convoluted and often unclear governmental guideline. Or up to £60K max per year (again depends on individual salary) and one can bring forward unused personal sipp from last 3 years to be topped up to current.

anselld

Neither capital gains nor rental income are pensionable.   So if you have normal salary from other sources you can put all that in which may in turn bring more of the CGT liability into the basic tax band but if you don’t have earnings you are stuck. 

You can invest in EIS but not that is risky and it is only a deferment of CGT not a reduction.

Olinda99

Are you sure it is 30 days from completion to pay the CGT due? I always thought it was six 60 but I could be wrong of course

Albermarle

JonMitchell said:

Dazed_and_C0nfused said:

JonMitchell said:

Hi

Both my wife and myself have a BTL rental property that we are using for retirement but considering selling it now as needed to release the cash from it.

There will be capital gain tax to be paid but wonder if we are allowed to use the profits from the sale to be directed into our own personal pension, therefore liable for lower capital gain tax?

Eg.     Rental property purchased             =    £100K
           Sold value                                      =    £400K
           Legal/EA costs, previous SDLT      =    £10K

           Gross profit liable for tax =  £290K
  
Have 30 days on completion to pay liable tax

            Are we allowed to use, eg. £100K, £50K each for wife and myself put into personal pension (SIPP)

            Total profit liable for tax = £190K

Not sure if this is at all plausible. We do not have an accountant, so have no one to ask really. 

Thanks 

AIUI there can be some benefit to doing this.

But it doesn't change the amount of the gain that is taxed, it increases the basic rate band available.

You would still have to comply with the pension contribution limits (Capital Gains don't count) and the benefit would be nothing like what you have suggested.  But it may help.

Try a Google of CGT tax rates/bands.

Agreed, personal or workplace pension ( or both combined)is up to 100% of individual salary for that year for the amount you can claim tax relief on.  as far as I understand from the convoluted and often unclear governmental guideline. Or up to an annual allowance £60K max per year including your contributions + tax relief + employers contribution(again depends on individual salary) and one can bring forward unused personal sipp annual allowance from last 3 years to be topped up to current.

Just added a few points for clarity.
Confusion between the tax relief limit ( which can not be backdated from the current tax year) and the annual allowance, where unused allowance from three previous tax years ( remembering it was previously £40k) can be utilised, is a common subject on the Pensions board.

JonMitchell

anselld said:

Neither capital gains not rental income are pensionable.   So if you have normal salary from other sources you can put all that in which may in turn bring more of the CGT liability into the basic tax band but if you don’t have earnings you are stuck. 

You can invest in EIS but not that is risky and it is only a deferment of CGT not a reduction.

Presume rental income from holiday lettings can be pensionable, at least till 24/25 YE?

JonMitchell

Just to clarify, the rental property we are selling is a BTL property. We have two other properties that are used as holiday lettings.

anselld

JonMitchell said:

anselld said:

Neither capital gains not rental income are pensionable.   So if you have normal salary from other sources you can put all that in which may in turn bring more of the CGT liability into the basic tax band but if you don’t have earnings you are stuck. 

You can invest in EIS but not that is risky and it is only a deferment of CGT not a reduction.

Presume rental income from holiday lettings can be pensionable, at least till 24/25 YE?

FHL rental profit.  Yes until 5 April 2025.