Updating post from Reddit.
I know some might argue there’s no point in being a buy-to-let owner in the UK, but let’s skip that discussion. I’m already frustrated with how this country’s system works, so let’s move on to the actual question.
I bought a house several years ago. More recently, I moved into a rented property after failing to sell my old home at the desired price, and I’ve since rented it out. The old property is now mortgage-free and jointly owned by my spouse and me, with both of us in the 40% tax bracket.
I’m considering ways to reduce the tax on the rental income. I’m aware of options like splitting rental income to utilize personal allowances (though we’re both at 40%) and claiming allowable expenses such as maintenance, insurance, and agent fees.
Key Question:
I’m thinking of contributing all of the rental income into my pension, assuming this would effectively leave my employment income as the only “taxable” source. Given that I can contribute up to £60,000 into a pension, I have enough contribution room to handle this. Would this be a viable way to minimize the tax impact of the rental income, or are there other strategies I should consider?
Any practical insights would be appreciated. While I’m aware of the general climate around buy-to-let, I’d like to focus on specific steps that could help me manage the tax more efficiently. Thank you!
Can you up your contributions into your workplace pensions? Once I paid off the mortgage on my home, I upped my pension contributions significantly. It’s been enough to drop me out of the 40% tax bracket.
especially if their offering salary sacrifice, you’ll save on paying back student loan if you have one
How old are you? Genuine question - as that will determine how long you won’t see that cash for etc
42
Hmmmm even if you did that - would it be worth it and waiting 20 odd years for maybe getting it?
You won’t get tax relief on your rental income as such, but on your overall tax bill.
Thats how I am looking as well.
You can’t claim pension tax relief on rental income. So there is no strategy.
Off course after tax you have maybe more income from other sources that allow you to put aside more of employment income into your pension. But thats possible without rental income.
Understood, overall, I'm not worst off or am I ? i.e. I will pay less tax by putting rental income into pension.
No. Your rental income is not going into the pension.
It is an option I’d put it into both your pension and your spouses So you build up two pots and get two tax free lump sums
It is of course a long game and you have the risk of future governments changing the rules on pensions .. for example killing the tax free lump sum
Thank you, really appreciate this as a reminder.
A more adventurous approach could be to mortgage the house to release equity. Use this money to load up SIPPs and ISAs. You have a good few years for growth in the pensions.. compound returns are powerful. This may give more flexibility.. if one of you hit the 100k 60% tax trap you can do more pension contributions to avoid
This is more risky .. that said long term equity returns should make this worthwhile and you get the tax booster on the SIPP.
That said if you had say 100k mortgage on the house I’d be telling you not pay down the mortgage if on a competitive rate .. but invest in SIPPs and ISAs. Same thing
thanks
I don’t think you can do this unless the property is in a limited company.
I'll take it is not a small/cheap change ?
Get yourselves out of the 40% tax bracket IMO.
how ? :)