The Goose that laid the golden egg

by Readers Question

15:12 PM, 16th March 2017
About 2 years ago

The Goose that laid the golden egg

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The Goose that laid the golden egg

I am a private landlord with half a dozen properties in London and no other income beyond the rental income. I never paid much attention to pensions in the past perhaps for obvious reasons.

Last September I started reading up on SIPPs and was moved to take one out with a well known provider. I made my contributions and marveled at the tax relief as it was credited to my SIPP account each month. The stock market continued to show handsome returns although of course it can (and will) go down as well. I felt I had done something really good to supplement my property income during retirement.

All seemed rosey and I felt I had finally caught the goose that lays the golden egg.

As I continued my research on SIPPs and the stock market I kept hearing a phrase to which I paid little attention, but something started to cause it to nag at me deep inside. Eventually I phoned up my SIPP provider and asked them the following question.

“Does buy to let rental income count as qualifying earnings as far as SIPP is concerned?”

You guessed it. The answer was NO. That meant no tax relief which meant the SIPP had become worse than useless as it meant any income drawn from it later would essentially be taxed twice.

The only positive thing was that I can put £3600 into the SIPP each year whether there were qualifying earnings or not. Not much help to me as I had far bigger plans.

I am sure I am not the first B2L landlord to come up against this so I am wondering if there are any other pension scheme possibilities for people in my position that you or your readers are aware of or is it really the case that the property portfolio is my own self invested personal pension.

Regards

Chris



Comments

Neil Patterson

15:16 PM, 16th March 2017
About 2 years ago

Hi Chris,

Commercial property can be invested into a pension and does not carry the stamp duty surcharge penalty.

Pension advice is the most regulated type of advice. If you have incurred loss due to poor advice then I would recommend you instigate the advising firms complaints procedure.

Murray Smith

9:14 AM, 17th March 2017
About 2 years ago

The rental income from commercial property held within a SIPP is also free from income tax. It's also possible to set up your buy to let operation as a limited company, the 'salary' you pay yourself from the company would then qualify as tax-relievable contributions for your SIPP - obviously lots of other considerations (both drawbacks and advantages) of going down this route.

Charles de Lastic

10:39 AM, 17th March 2017
About 2 years ago

I am a regulated Financial adviser and so I declare this answer must be regarded as generic advice only and not regulated advice.

If you used an adviser to set up your SIpp this would be classified as bad advice and so you should approach them with a complaint. If you did it directly then I doubt you have any grounds for complaint.

You should take advice to place your properties into a limited company and then the pension contributions you can make.

However at present if you work out the hours you work on your property management and charge a separate management fee this would be classified as earned income which is then able to be placed into pensions. Of course it depends if the income generated would exceed the £3600 anyway. Also you would need to check with a tax accountant if you can do this now for previous years.

If you have a dozen properties in London you also have a large potential Inheritance tax bill which can be avoided with proper advanced planning. This is an area in which I specialise so please let me know if I can help.

Alison King

10:41 AM, 17th March 2017
About 2 years ago

I think if your properties are in limited company you can pay yourself a pension before tax up to the total income of the company. But I am not an expert and this would need to be clarified by an expert or someone who has done this before.

Amjed Khan

22:52 PM, 17th March 2017
About 2 years ago

Thanks for bringing this poitou to everyone's attention. I'm still in a full time job so not an issue for me. If you do end up settings up a Ltd company then I would suggest that you look at SASS. Remember every ones circumstances are unique and you need to take professional advice.

Chris Unwin

10:54 AM, 18th March 2017
About 2 years ago

Thanks to everyone for your replies. To clarify, I did not take any advice but acted off my own bat when I took out the SIPP. I made a small contribution to the SIPP initially just to see how the whole thing works and to get some confidence in it before making a bigger commitment. Dissapointing as it that it seems my tax pounds are not as good as someone's tax pounds who is in employment, the outcome that I can at least pay in £3600 gross and get tax relief (x2 as I can do the same for my wife) is some small result so the whole exercise has not been a compete disater. At the end of the day I will be claiming back some £700 of my taxes which cant be bad. The net result is that I can 10 years growth from the Stockmarket on my sipp before thinking about drawing any pension at age 65.

There is another aspect to pensions in general in the post clause 23 world. When I was a boy I had a job (I knew no better) and my employer made payments into a DC pension scheme for me. I have seen this grow over 25 years and it is now a very healthy sum. Heres the catch. As a reasonably successful landlord, Mr Osborne has made artificial higher rate tax payers out of both myself and my wife when under the old rules we were not . So should I try and access funds from my occupational DC pension pot (I am over 55) any money I take after the first 25% will be taxed at 40% when under the old rules I feel I could have managed the withdrawls to keep my tax rate at 20% if I so chose.

So I reckon I have been well and truly shafted on several fronts.

Thank God I did not vote Tory last time....

Roanch 21

20:46 PM, 20th March 2017
About 2 years ago

You could form a Ltd company to carry out some work that you as an individual may be doing in connection with these properties. Maybe management or maintenance. So you pay this Ltd co a mgt fee every month. In turn they pay you a paye salary every month (a small salary of maybe £5 - £6k pa means that no tax or NI will be deducted at source and keeps things simple) AND the Government will even credit you with NI contributions for your state pension as well. You can then invest as much salary as you want into your sipp and get pension tax relief.

It's not as hard as you think running a simple company like this. Many contractors, BBC newsreaders etc do it. Please check the exact current figure on HMGOV I think it's called the Lower Earning Limit.


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