Landlords: How to Use Pension Contributions to Reduce Your Tax Bill

As a landlord, managing your tax liability is just as important as managing your properties. If your total income (including rental profits) exceeds £50,270, you may find yourself paying 40% higher-rate tax on some of your earnings. But did you know that making pension contributions could help you reduce your taxable income and save on tax?

In this blog, we’ll explain how pensions can be a tax-efficient strategy for landlords, with a simple example to show how you can benefit.

How Does the 40% Tax Threshold Affect Landlords?

In the UK, the basic rate of income tax is 20% on earnings up to £50,270. Any income above this amount is taxed at 40%. For landlords who receive rental profits alongside other income (e.g., salary, dividends, or self-employment earnings), exceeding this threshold can significantly increase your tax bill.

Example: A Landlord Paying Higher-Rate Tax

🔹 Total taxable income (salary + rental profits): £55,270
🔹 Higher-rate tax threshold: £50,270
🔹 Amount taxed at 40%: £5,000
🔹 Higher-rate tax due: £2,000

Now, let’s see how making a pension contribution can help reduce this tax burden.

Using Pension Contributions to Reduce Tax

When you contribute to a pension, the amount you contribute reduces your taxable income. Plus, you get tax relief on your pension contributions, making it a win-win.

✅ If a landlord contributes £5,000 into their pension:

• Their taxable income falls back to £50,270
• They avoid paying 40% tax on that £5,000
• They receive tax relief, meaning the contribution only costs them £4,000 after basic-rate tax relief
• Their pension pot grows tax-free for the future

Effectively, instead of paying £2,000 in tax, they keep their money invested for retirement while still benefiting from tax savings today!

Why Is This a Smart Move?

✔️ Less tax paid now – Keep more of your hard-earned rental profits
✔️ Boost your retirement savings – Invest in your future rather than giving more to HMRC
✔️ Tax-free growth – Your pension investments grow without being taxed
✔️ Flexibility in retirement – Once you reach age 55 (rising to 57 in 2028), you can access 25% of your pension tax-free

Who Should Consider This?

This strategy is ideal for:
🏡 Landlords whose income is just above £50,270
🏡 Those who want to reduce their higher-rate tax liability
🏡 Landlords planning for the future and looking to build wealth tax-efficiently

Final Thoughts

If you’re a landlord earning above £50,270, pension contributions can be a powerful way to reduce your tax bill while securing your financial future. Instead of handing over more to HMRC, why not put that money to work for you?

If you’d like to explore this strategy further, speak to a tax advisor or financial planner to ensure you’re making the most of your allowances.

📩 Need help with tax-efficient property income planning? Contact us today!