Relevant UK earnings: the key rule for landlords
- Pension contributions only attract tax relief up to the higher of £3,600 gross or 100% of your 'relevant UK earnings'
- Relevant UK earnings include employment income (salary, wages), self-employment trading profits, and certain other earned income — rental income does NOT count
- A landlord with only rental income can contribute a maximum of £3,600 gross per year to a personal pension
- A landlord with employment income of £40,000 plus rental profits can contribute up to £40,000 gross to a pension and receive full tax relief
- The annual allowance (£60,000 in 2025/26) is the maximum tax-relievable contribution across all pension schemes in a tax year
Using pension contributions to reduce landlord income tax
- Pension contributions extend the basic rate band: contributions equal to income in the higher rate band bring all income back within the basic rate, saving 20% on each pound contributed
- Section 24 interaction: for higher-rate landlords, pension contributions that reduce income to the basic rate band largely neutralise the Section 24 restriction
- Child benefit taper: a pension contribution reducing adjusted net income below £60,000 preserves the full child benefit entitlement
- Personal allowance taper: income just above £100,000 tapers the personal allowance at £1 per £2 of excess. Each £1 of pension contribution recovers £1 of allowance, saving 60p in tax
SIPP, SSAS, and limited company pension options
- SIPP (Self-Invested Personal Pension): the standard choice for individual landlords. SIPPs cannot hold residential buy-to-let property directly without a punishing taxable property charge
- SSAS (Small Self-Administered Scheme): for limited company landlords. A SSAS can hold the employer company's commercial property and make loans to the employer
- Employer contributions from a limited company: deductible from Corporation Tax, no employer National Insurance — often the most efficient extraction method for director-landlords approaching retirement
- Carry-forward: unused annual allowance from the previous 3 tax years can be used in the current year, enabling contributions above £60,000 where past years' allowance was unused