recycling of a lump sum

Bobbys_girl

I expect to be made redundant in June and expect to receive:
A salary of £10250 (three months salary)subject to contributions to an occupational pension of £942;
Occupational pension of £16750 (plus a tax free lump sum of £63000) and
A redundancy payment of £81,928 (not an ex-gratia payment),
I also have a AVC pension plan valued at £8,783, payments having been made before 27 March 2014.
About £35,000 of the income will be subject to tax at the higher rate.
I want to pay contributions of £29,000 to the AVC pension fund with a view to withdrawing 3 lump sums of about £10,000 in later tax years.
My questions are
Is the redundancy payment treated as earnings for the purposes of limiting the amount which can be paid into the pension fund?
Would this be regarded as recycling of a lump sum?

kidmugsy

It would be easy, in my view, to make the case that the desired contribution came from the redundancy pay rather than the TFLS, by pointing out that you'd have made the contribution even if your TFLS had been zero. That's the argument I had up my sleeve in my own case, but in fact HMRC didn't bother me at all on the issue. Whether there is precedent for HMRC accepting that argument I have no idea.

As for whether the redundancy pay counts as earnings: dunno. I retired late in the tax year and the question didn't arise.

Bobbys_girl

Are the three withdrawals of £10000 in addition to the two withdrawals of £2,000 which can be made on payments made prior to 28 March 14?

SnowMan

The treatment of redundancy pay in relation to tax relief on pension contributions can be found at

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM05203020.htm

kidmugsy

SnowMan wrote: »

The treatment of redundancy pay in relation to tax relief on pension contributions can be found at

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM05203020.htm

In light of that, a gross contribution of £35k is "on". However, OP,why use an AVC rather than a personal pension of some sort? Can you be confident that your AVC will be as flexible as many personal pensions and SIPPs are going to be? I ask because my AVC is proving very inflexible so far, and it's not clear that matters will improve much in April.