Pension Benefit Recycling

dptp1

I wonder if you can help with this Q. which follows on from very informative and useful previous replies to this subject.

I have recently retired, aged over 65, and have a SIPP, value approx. £125k, from which I have not yet taken any benefits. I have not made any contributions in recent years (apart from small pension fund transfers).

I have a cash ISA which I am thinking of using to mop up unused tax relief on carry forward contributions for previous tax years. The total gross amount of contributions could be over £30k and I want to avoid any pension recycling issues.

Do you know if there is an acceptable length of time to wait before taking a PCLS? Also, the ISA funds came from the sale of my wife's deceased parents’ home approx 6 years ago. Is there a time limit on using funds from this type of source as an exemption?

Any views on this greatly appreciated.

kidmugsy

dptp1 wrote: »

I have a cash ISA which I am thinking of using to mop up unused tax relief on carry forward contributions for previous tax years.

Sorry, but that sounds as if you are confused on this subject. You cannot usefully pay into a pension more than your earnings for the tax year in question: at this instant, 2014-15. The exception is if your earnings are less than £3600: then you can contribute £3600 gross = £2880 net. There is no such thing as "carry forward contributions": there used to be, decades ago, but not now.

If you've had some earnings in 2014-15 and want to contribute to a pension on that basis, you'll need to hurry up. The tax year ends on April 5th.

dptp1 wrote: »

Do you know if there is an acceptable length of time to wait before taking a PCLS? Also, the ISA funds came from the sale of my wife's deceased parents’ home approx 6 years ago. Is there a time limit on using funds from this type of source as an exemption?

(i) Wait as long as you like, before age 75. At that age you lose the right to a tax-free PCLS. Or, are you referring to pension recycling of this proposed lump sum?

(ii) I don't understand "as an exemption". What do you mean?

dptp1

Sorry, to be clearer, I stopped working in February 2015, therefore have earnings. By acceptable length of time I mean from HMRC point of view to avoid classification as PCLS recycling. By exemption I mean treating the contribution as coming from inheritance windfall. Is that any clearer now?

kidmugsy

OK, the fact that the money originally came from an inheritance doesn't matter at all. It's your money to use as you wish.

If you use your 2014-15 earnings to justify contributing to a SIPP then it doesn't matter if the cash you actually hand over had a spell in an ISA.

The question is then about taking a PCLS. In this tax year you can take £12,500 without there being any recycling implications. It might be wise to get on with that as it's "use it or lose it". In 2015-16 you can with draw £7500 PCLS and it'll be tax effective as long as you take it at least a year and a day after the previous one. And so on until you've cleared the PCLS entitlement out.

I may say that I learnt this from regular poster jamesd, so if he comes along to correct me, believe him not me. Or you can look for his comments on recent threads.