Recycling question

CathA

I know that you can pay into a pension up to the amount of your annual income, up to certain limits, but if you take your 25% lump sum from another pension and use some of that to pay into another pension the equivalent amount, how does HMRC know if it has come from the lump sum or your income? Figures-wise it will match, but the origin of it will be different. Or am I giving HMRC powers of telepathy? Lol. Thanks, just idly wondering.

kidmugsy

CathA wrote: »

I know that you can pay into a pension up to the amount of your annual income, up to certain limits, but if you take your 25% lump sum from another pension and use some of that to pay into another pension the equivalent amount, how does HMRC know if it has come from the lump sum or your income? Figures-wise it will match, but the origin of it will be different. Or am I giving HMRC powers of telepathy? Lol. Thanks, just idly wondering.

They just write a set of rules that doesn't indulge in the fruitless activity of engaging with a silly attempt to distinguish where the money comes from.

jamesd

HMRC lacks telepathic power but can look at the numbers to see whether there has been an increase in contributions for the five years around the one where the lump sum was taken.

If the lump sum taken is no more than £12,500 this tax year or no more than £7,500 from next tax year onwards the recycling rules can't be triggered These aren't tax year periods, it's a running twelve year window starting at the time the first lump sum in the window is taken. So allow 12 months and one day between lump sums.

Another rule is that it's not subject to the recyclcing rule if the increase attributable to the lump sum over those five years is less than 30% of the lump sum value. Recycling pension income isn't restricted so provides one way to reduce the amount potentially attributable.

Don't let the figures match exactly. that's just asking for HMRC to take a suspicious look