SIPP in the context of reducing the agony of Section 24 tax changes

Reply to the comment left by Alison King at 16/01/2018 - 12:10
No - you can pay in from your rental property but up to a maximum of £2,880 net and the Govt will then gross it up to £3,600.

Reply to the comment left by roman lipka at 16/01/2018 - 11:51
Is it possible to use the carry back provisions if you only have investment income eg gross £3,600?

Reply to the comment left by Yvette Newbury at 16/01/2018 - 13:33
you can put 40000 a year into a sipp i am doing this , if you are a ltd company you can pay yourself 86000 ,40000 salary sacrifice and 46000 pay so you are a basic rate tax payer , when you take pension take 25percent value off fund tax free

With the proviso that I'm not offering advice, if you have a Ltd Co it's worth looking at SSAS rather than SIPP as you can be the Trustee of your own pension; no 3rd party advisor nor their commission to worry about. Lend from the pension to your business, buy commercial property in the SSAS and all rental income and capital appreciation are tax free, only the income you remove as pension income. Pull out 1/3 of the value at 55. Great for reinvesting and building up a big pot doing something familiar (property). As long as the govt doesn't change the rules of course.

Reply to the comment left by Yvette Newbury at 16/01/2018 - 13:40
I think carry-back only applies to earnt income, not investment income.

Reply to the comment left by david porter at 16/01/2018 - 09:48
David, Karen is asking about SIPPs because she wants to receive pension tax relief @ 20% or 40%. If she pays down her mortgage, this is payment from her after-tax income and there is no tax refund.

Reply to the comment left by Alison King at 16/01/2018 - 11:39
Alison, surely if you take a 25% lump sum or income drawdown from the SIPP, then you are judged to have started the pension, and your maximum gross contribution per year will fall from £40,000 to £3,600. The pension rules specifically ban people from making large contributions (and receiving large tax relief), whilst at the same time receiving an income from their fund.

Also, for those who think they will get 40% tax relief on their pension contributions, surely this only applies to the proportion of earned income that is above the higher-rate threshold? So if Karen is earning £35K as she states, then she can only ever receive 20% tax relief, however much she receives in investment income from rents. And if she were earning £55K and contributes £20K to her SIPP, she will only get 40% tax relief on £10K of that, i.e. the amount that is above the higher-rate threshold in 2017-18 of £45K. She'll get 20% tax relief on the £20K at source when she makes the contribution (i.e. she only needs to contribute £16K) in hard cash, and can reclaim the remaining £2K when she submits her next self-assessment return. I'm assuming here that there are no options here as regards salary sacrifice.

Reply to the comment left by Tony Atkins at 23/01/2018 - 11:56
Correction: the maximum amount that can be contributed once you starting making withdrawals from a SIPP is £4000 p.a., not £3600.

Contributions eligible for tax relief - for most people this will be their employed salary, but there are quite a few additional options - are detailed here: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings.

I’m not a tax person but I'm also interested in this idea but as people have already pointed out, residential property income is not deemed earned income so is not eligible for SIPP's so it's not much help for those that get their income entirely from property.

As pointed out, even if you have no earned income you can still make a £2,880 which will be grossed up (by your pension provider claiming from the government) to £3,600 (that option is available to everyone even if you have no income whatsoever).

In the case of those that have no other income (i.e. pure property) it would be interesting to know the effect of such a payment on our self assessment? Will it push up the basic rate tax boundary by £3,600 as suggested by SilverSilver2017 on our self assessment or is the self assessment software clever enough to skip that process if you only have property income?

If allowable it would be a small help but regardless we all have to remember that although paying money into a pension is tax efficient you still can’t touch the money until you retire.

In the case of the original poster they use to be taxed at 40K so they use to live off 40K minus deductions for tax. If they make a 20K gross pension contribution they’ll have 20K to live off (minus the same pre Section 24 tax) and 20K in a pension for when they retire? So Section 24 doesn't effect the tax they pay but the amount of accessible income has halved.

I guess it will depend on how close to retirement you are, how much income you actually need and perhaps if you have some savings to make up the pension contributions?