SIPP pension contributions from capital gains

[matchmade]

I am self-employed and almost all my income derives from capital gains: I renovate houses or finance new-builds, and have no earned income. I pay income tax on these capital gains following pretty well the same tax bands as earnt income. Does this mean I can make pension contributions to my SIPP based on these capital gains "earnings", and hence reclaim the tax at my highest marginal rate?

[kags]

If you run a busines buying and selling property your profits will normally be taxed as income rather than Capital Gains. If this is the case, you will have the relevant earnings to make SIPP Contribitions. If you pay tax twice a year, on 31 January and 31 July, then you are paying income tax - if you only pay once, on 31 January, you are paying Capital Gains Tax. To be sure, check with your accountant, and make sure he/she has looked at the VAT position.

[matchmade]

Thanks kags,

I've only recently started out, as until now I've always established a property as my "principal private residence" before or after renovating it, which means there's no CGT to pay. Now I'm turning over more properties and CGT kicks in.

I've since done some more hunting on the web and found that profits on property will count as "earnings" for my business, hence taxable after deductions for expenses, capital allowances and so on. "Net relevant earnings" are what qualify for SIPP contributions, and these can either be conventional earned income from being an employee, or taxable earnings as declared by someone who's self-employed.

So basically if you're earning money from your own business and it's taxable, you can make personal pension contributions under the new rules since 6 April 2006, i.e. up to 100% of your complete annual earnings up to a maximum of �215K a year, if you can afford it. Not bad!

[kags]

You are right about the SIPP contributions, but there are many other implicatons of being self-employed - paying Class 2 National Insurance Contributions for one. If this is now your main source of income and you are turning over a number of properties, I would say your profits will almost certainly be taxed as earned income rather than CG. I would recommend that you take some professional advice before you set up the pension, and in particular check out the VAT implications.