Ask the Expert: Can I self-invest in a pension to achieve lower income tax?

PUBLISHED: 06:00 04 March 2019 | UPDATED: 08:01 04 March 2019

Carl Lamb, managing director of Almary Green

Carl Lamb, managing director of Almary Green


This week, our reader wants to know if self-investing in a pension scheme will help to lower income tax on other aspects of his earnings. Carl Lamb of Almary Green responds.

Reader question:

I have a small portfolio of rental properties – mostly flats – which I run in a partnership with my brother.

I also have a job which pays a salary that covers my bills, so I normally put the rents from the properties into savings accounts (normally ISAs), so the interest stays free of tax but I do have to pay income tax on my rental income.

I have heard that I might be able to put them into my pension scheme and so not pay the income tax.

Can this be done?

Almary Green Response

It is possible to put some types of property into a self-invested pension scheme but sadly that excludes residential property, so this is not an option for your rental property portfolio.

Self-invested pensions can hold commercial property and land so are a solution that may be suitable for a business owner, for example, where the business premises can be put into the self-invested scheme, in some circumstances.

However, it’s worth saying that self-invested pensions are normally only suitable for the more sophisticated investor as they are more complex and require a more hands-on approach from the investor.

There are property funds available to self-invested pension fund holders where residential property may be part of the fund, but these are not specific to a particular property and investor.

One option might be to use your rental income to make a larger contribution to your existing personal pension.

Pension contributions up to the annual allowance (currently £40,000 unless you’ve started taking flexible withdrawals from your fund) attract tax relief, which in essence means that HM Revenue & Customs will pass the tax that you’ve paid on your contribution onto your pension fund, increasing your overall gross contribution.

Any growth on the money once it’s in your pension will be largely free of tax, although you may pay income tax on withdrawals when you come to take your pension.

However, please bear in mind that you would be locking your money away until you reach the minimum pension age – currently age 55 – so you must be sure that you will not have need of it before then.

I recommend you get advice from an independent financial adviser to put together a plan that delivers what you need both now and in the future.

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