Maximum employers contribution

nrsql

In 2011 I consolidated some pension funds and took the 25% tax free cash. Those pension pots were moved into drawdown but I have not drawn any income.

I work through a company as the sole employee and director.
At the time I thought I was retiring but enjoy work too much I guess.

A few questions:

1. Would I now be able to contribute £40k this tax year and next as a maximum employers contribution or would it be limited to £10k due to the others being in drawdown.

2. If £10k max could I go back a few years to increase the contributions due to not paying in anything since 2011.

3. Could I take out 25% tax free cash from the new contributions (and move to drawdown?) or would this be considered recycling.

(Yes I've asked my FA but...).

TH1878

nrsql wrote: »

In 2011 I consolidated some pension funds and took the 25% tax free cash. Those pension pots were moved into drawdown but I have not drawn any income.

I work through a company as the sole employee and director.
At the time I thought I was retiring but enjoy work too much I guess.

A few questions:

1. Would I now be able to contribute £40k this tax year and next as a maximum employers contribution or would it be limited to £10k due to the others being in drawdown.

2. If £10k max could I go back a few years to increase the contributions due to not paying in anything since 2011.

3. Could I take out 25% tax free cash from the new contributions (and move to drawdown?) or would this be considered recycling.

(Yes I've asked my FA but...).

1) yes to £40k
2) no
3) Yes but see below

nrsql

Thanks - and my FA came back almost as quickly.
He agrees with you apart from 2 - says I can carry forward up to 3 years (so up to £120k?).

Apparent my current pension is in capped drawdown which allows the £40k as I haven't taken income.

Guess I can pay in this year and take the tax free cash but not next year unless I am willing to restrict to £10k contribution (flexi-access drawdown).

What are your thoughts?

TH1878

nrsql wrote: »

Thanks - and my FA came back almost as quickly.
He agrees with you apart from 2 - says I can carry forward up to 3 years (so up to £120k?).

Apparent my current pension is in capped drawdown which allows the £40k as I haven't taken income.

Guess I can pay in this year and take the tax free cash but not next year unless I am willing to restrict to £10k contribution (flexi-access drawdown).

What are your thoughts?

That wasn't the question you asked. You can carry forward the unused annual allowance now (actually £50k pa for the last 3 tax years) but once you have taken benefits under the new rules after April, your annual allowance is reduced to £10k with no carry forward.

nrsql

Sorry - 2. wasn't clear. It was meant to refer to this tax years contribution.

From my reading of the rules it suggests that if I increase contributions within 2 years of taking the tax free cash it would be considered recycling even if it's an employers contribution.
Seems odd as the tax free cash isn't being channeled back into the pension.

TH1878

Sorry nrsql, I was on my phone before and wasn't as clear as I should have been.

I should have added that, as long as you don't convert your capped drawdown plan to flexi access drawdown, your annual allowance will stay at £40k. Any new money INTO THE SAME plan will be deemed to be additional capped drawdown funds as long as you don't take income over the capped drawdown limits. You can take the TFC and some income without being liable to the £10,000 annual allowance.

So you can access your TFC after April and retain your £40k allowance. Similarly if you only take TFC under Flexi Access Drawdown (and no income).

nrsql

So to get the TFC I could just add to the current scheme?

I thought I would have to contribute to a pot then convert to drawdown to get the TFC.

My plan was to start SIPP this year. Would that be a problem? i.e. could I take TFC from that without problem and would next years contribution need to go into the old drawdown pot to get the TFC or could it go to either?

(You seem pretty clear and helpful - hope the phone call went as well).

TH1878

nrsql wrote: »

So to get the TFC I could just add to the current scheme?

I thought I would have to contribute to a pot then convert to drawdown to get the TFC.

My plan was to start SIPP this year. Would that be a problem? i.e. could I take TFC from that without problem and would next years contribution need to go into the old drawdown pot to get the TFC or could it go to either?

(You seem pretty clear and helpful - hope the phone call went as well).

You could start a new SIPP and take the tax free cash before April under capped drawdown rules. As long as future contributions go into the same SIPP and the crystallised funds into the new SIPP drawdown plan, your benefits will all still be deemed as capped drawdown and you will retain the £40k annual allowance.

nrsql

Thanks TH1878.

Any idea about my interpretation of recycling. Have I got hold of the wrong end of the stick?

TH1878

nrsql wrote: »

Thanks TH1878.

Any idea about my interpretation of recycling. Have I got hold of the wrong end of the stick?

As you will be taking benefits under the current rules and not FAD, you should be ok to take the TFC and carry on contributing from your company.

It's very difficult to prove TFC recycling but your company is a separate legal entity to yourself so you won't be caught by the rules anyway.

nrsql

It says that third party contributions (including employer) can still be caught by the recycling rule.
http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104920.htm

Reading further about examples that they say will not be caught makes it as clear as mud. Sounds like it's another one of those things which they reserve the right to interpret as they see fit but I think it's worth ignoring.

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104925.htm
>> The individual must still be shown to have intended to use the lump sum as the indirect means of making the increased contributions.