Claiming a pension lump sum...

novice-saver

and then starting another new pension?

There are issues with "the use of tax-free lump sums from registered pension schemes to fund further tax-relieved pension contributions."

Despite being able to put 100% of earnings into a pension since "A day", if HMG thought you were funding a bigger contribution than you used to, you could fall foul of "recycling" rules.

See this for details and examples

www.hmrc.gov.uk/budget2006/recycling.pdf

The penalties are 55% tax for you, and the scheme administrator of the pension scheme which gave you the lump sum can be in bother too.

Ian_W

And your point is .... what?

As I understand it "recycling" was seen as a loophole to obtain double tax relief and the Govt has acted to stop what they saw as an abuse of the relatively generous tax treatment of pension contributions.

novice-saver

my point was simply that I thought it was worth mentioning.

I didn't know about it, and found out by chance just in time to change the plans I had made - which weren't deliberate "recycling", but would drop inside the remit of the legislation.

Maybe I shouldn't judge others by my level of ignorance.

Ian_W

novice-saver wrote: »

Maybe I shouldn't judge others by my level of ignorance.

I had certainly not intended to come across that way, just couldn't understand the point you were making about "re-cycling" from what you posted.

The "mischief" the Govt sought to prevent is using the tax free lump sum to effectively obtain double tax relief on the same money. E.g. Larger annual limit on pension contributions so pay a lump sum into a pension and obtain 40% tax relief, draw 25% tax free cash and put it into another pension with another 40% tax relief. If the sums are high enough there could be an awful lot of tax relief involved!

novice-saver

Ian_W wrote: »

just couldn't understand the point you were making about "re-cycling" from what you posted.

that's fair comment - I knew what I meant, but I got so tied up in it the message got lost.


The point was to mention that recycling legislation exists, for those like me that didn't know about them, and to provide a good source of the "rules".