Pension Tax Relief on Rental Income?

Gaberdeen

I want to reduce the tax exposure of my rental income for the next few years and wanted to explore the possibility of using my existing pension or a new SIPP to do this.

I currently am employed full time on a salary of ~£83,500 - and around £53k is being sal-sac'd into my employers Master Trust pension scheme.

My net income from rental property is around £3,200 for the year

1. Am I able to contribute that £3,200 into my Employer pension scheme as an AVC or into a new SIPP?
   
2. If yes, how is this dealt with at the end of the year? I assume via self assessment and retaining receipts showing the payment into the SIPP or Employee pension - but clarity would be welcome.
   

Thanks in advance for any advice / observations

Isthisforreal99

Not sure how contributing to a SIPP would reduce your rental income tax exposure. It would still be taxed at 20% with or without a SIPP contribution.

Dead_keen

https://forums.moneysavingexpert.com/discussion/6657985/pension-tax-relief-on-rental-income

Cash is fungible and so you can contribute that cash (or any other cash) to a SIPP or salary sacrifce to your employer's scheme. The key bits to remember are:

1. Your rental income is ignored in working out the maximum pension contributions (that will just be based on your earnings or the £60,000 limits (plus carry forward)).
2. Your employer should not let you sacrifice so that your pay is below the national minimum wage.

If salary sacrifice, tax relief happens automatically. If you contribute a new SIPP and are a higher rate taxpayer, the extra relief is claimed through self-assessment.

DRS1

You say £53k is being salary sacrificed into the works pension - does that include real employer contributions? If not how much is the employer also paying? If it is anything more than £7k you may need to do some sums.

Oh and is the £83k before or after the salary sacrifice?

Gaberdeen

https://forums.moneysavingexpert.com/discussion/comment/81909256#Comment_81909256

Yes, including employer contributions. And the £83k is pensionable, so before Sal Sac.

Gaberdeen

https://forums.moneysavingexpert.com/discussion/comment/81909229#Comment_81909229

Yes… but you also get tax relief on the contribution which is equal to the tax you would pay.

Isthisforreal99

https://forums.moneysavingexpert.com/discussion/comment/81909311#Comment_81909311

Indeed, but you will stay pay the same amount of tax on your rental income.

You clearly are paying in a lot to your pension schemes and there comes a point where you may be only getting 20% relief on the way in but are in danger of paying 40% on the way out and now that pension pots will be included in IHT soon a more holistic view may be needed

DRS1

The easiest thing might be to increase your salary sacrifice but you might bump into the NMW restriction as there is only one month left this tax year.

You may need to investigate how the works scheme would treat a direct personal contribution from you. In particular would they reclaim the basic rate tax relief on the net contribution you make. If not it may be easier to use a SIPP if you have one (if you don't setting one up shouldn't take that long)