pension a-day question

pension a-day question

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The new pensions rules specify that when a property is contributed to the pension fund (eg ppr or btl), the investor will be able to claim higher rate tax relief against his income on the basis of an independent valuation of the property value.

Does that mean that if a higehr rate taxpayer transfers a property of say £300k into a SIPP, the government will top up the contribution by 22% (£84,615) into the pension fund and gety an income tax rebate of £69,231? Can anybody please clarify this? Thanks.
james

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By NeilW
15th Sep 2005 11:51

Same as a cash contribution
In specie contributions are treated in the pension fund exactly as though a cash contribution of the value of the items has been made.

So if the investor is the employee and member then it is a Net contribution, and if the investor is the employer it is a gross contribution.

Bear in mind that if you put a £300K property into a SIPP as a member, you will need annual income of £500K to get the necessary tax relief.

Whether you will be able to transfer part-ownership of a property is one of those things that has yet to be determined.

NeilW

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By andymeeson
15th Sep 2005 12:30

If only it were that simple
We also need to take account of the Annual Allowance Charge (FA 2004 s.227).

If the grossed-up contribution is within total earned income but over £215k, there will be a s.227 charge set against the higher rate relief. If the grossed-up contribution exceeds income, there is no AEC, but relief is restricted to income.

EG, income £500k, property of £300k as contribution:

Net contribution 300,000
Pension recovers tax 48,615
Gross contribution 348,615

HR relief: 18% of 348,615 69,231
s.117: 40% x(348,615 - 215k) (67,846)

Effective tax relief 1,385

Or, income only £100k:

Net contribution as above 300,000
Pension recovers tax * 22,000
Gross contribution 322,000

HR relief: 18% of 100k 18,000

* lesser of 22/78 x 300k and 22% of 100k

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