Can I top up my pension pot with my rental income?

Q. I am 72 years old, have a small occupational pension, state pension and income from rental property. I hold a sum of money in my pension account that I don’t need at the moment. Am I able to top this up?Sue, Crediton

You say you have a sum of money in your pension account so I’m going to assume this is a defined contribution (DC) pension, where you build up a retirement pot tax efficiently and then use that pot to give you an income in retirement.

It is possible to top up your DC pension at any age, although once you hit 75 you will no longer receive tax relief on your contributions. Given this is one of the key benefits of pension saving, anyone aged 75 or over should think carefully about whether a pension is the most appropriate home for their hard-earned savings.

As you are under 75 you still have a few more years of benefiting from tax relief, meaning if you are a basic-rate taxpayer and contribute £80 to your pension, this will automatically be boosted to £100. If you are a higher or additional-rate taxpayer you may also be able to claim extra tax relief from the taxman. However, an important restriction on the tax relief you can receive and the contributions you can make to a pension each year is your “relevant earnings”.

• I have a small pension, how can I boost it?

In Britain there is an annual allowance of £60,000 covering personal pension contributions, employer contributions and tax relief. Most people can put up to this amount into a pension each year and get tax relief on their payment.

Very high earners may have a lower allowance than this, while anyone who flexibly accesses income from their retirement pot will be subject to the money purchase annual allowance of £10,000.

In addition, the personal pension contributions you can make each year that qualify for tax relief are limited to 100 per cent of your relevant UK earnings. These earnings include income from employment (including bonuses and overtime), redundancy payments above the £30,000 tax-exempt threshold, benefits in kind that are taxable, profit-related pay (including the part which is not taxable), rental income from UK or EEA furnished holiday lettings businesses and patent income.

Crucially any pension income you have or income from a buy-to-let property will not count as relevant earnings for these purposes. Based on the information you have provided it looks unlikely you will have any relevant UK earnings and you will therefore be classed as a “non-earner” for the purposes of claiming pension tax relief. Assuming this is the case, the good news is you can still top-up your pension and receive tax relief on your contributions.

Anyone without any relevant UK earnings can personally contribute up to £3,600, inclusive of tax relief, into a pension up to the age of 75. This would usually comprise of £2,880 from you and an additional £720 via basic-rate pension tax relief.

Once contributed, this money will benefit from tax-free investment growth, with a quarter of your fund available tax-free and the rest taxed in the same way as income. Pensions are also extremely tax efficient on death and can be passed on completely tax-free if you die before age 75. After age 75, any DC pension inherited by your beneficiary or beneficiaries will be taxed in the same way as income.