carry forward rules

kidmugsy

dptp1 wrote: »

. However, if I now make additional contributions this tax year of £40k gross

Were your 14-15 earnings big enough to justify a £40k gross contribution?

TH1878

Unless I'm mistaken dptp1, you haven't drawn any benefits from your pension up until this point?

If not, and you had earnings to support a £40k gross contribution, you can pay £32k and get an £8k uplift.

Your pension fund will then be worth £165k and you can take 25% of this as a lump sum. The recycling rules normally only come into effect if you contribute to a pension after taking benefits - there is nothing to recycle otherwise.

Or you can structure payments whereby 25% of each payment is TFC and 75% is taxable income. If you are a non taxpayer, some of the taxable income may be tax free.

jamesd

dptp1 wrote: »

I thought the max. TFC would be £7500 because of the recycling rules, allowable after 1 year and one day between payments?

It's £12,500 this year, £7,500 from next but this is only relevant to people who might somehow involve the lump sum recycling rules. The maximum tax free lump sum is 25% of the total pension pot size if you want it all at once and have no worries about the recycling rules.

As kidmugsy wrote, at least starting capped drawdowna nd taking out £12,500 this year would be good.

Beyond that we'd need to know the pension pot size, earned income this tax year, pension contributions for the past three tax years and whether there has been money received from inheritance, lottery wins or some other source other than earnings and how much.

jamesd

TH1878 wrote: »

The recycling rules only come into effect if you contribute to a pension after taking benefits - there is nothing to recycle otherwise.

That is not a correct statement of tax rules because it does not allow for the cumulative basis of lump sum recycling calculation, which includes contributions made in the two tax years prior to the lump sum and the year in which it was taken, as well as the following two years.

kidmugsy

TH1878 wrote: »

The recycling rules only come into effect if you contribute to a pension after taking benefits - there is nothing to recycle otherwise.

Are you quite sure? When I read up on this a few years ago, hmrc were wily enough to have rules that penalised you if you made the contribution knowing that you were about to take a TFLS.


UPDATE: I see jamesd has made that very point, with helpful detail.

TH1878

Yes, technically they can look at the 2 years before drawing TFC but HMRC have said that normal retirement planning (which is what this is) wouldn't fall foul of the pension recycling rules as it wouldn't be pre-planned. From 2006 to 2011, the annual allowance didn't even apply in the last year before drawing benefits for this exact reason.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104920.htm

Unless the OP did something silly like take out a loan / use savings to make the contribution and then take the TFC specifically to repay the loan / replenish the savings, it is very unlikely to be deemed to be pre-planned. If the OP structures his benefits in a way whereby he also takes income, it will be nigh on impossible for HMRC to prove it was pre-planned and nor would they attempt to - this legislation wasn't designed to catch people in the OP's position.

madeinireland_2

Ok now you guys have worried me a bit.

Last year I made a significant SIPP contribution of £50k grossed up to £62500 - I had income to support the contribution but the funds were from savings. This year I made a £24k contribution grossed up to £30k - again this was from savings.

I intend to take a full TFLS from the SIPP next March when I am 55 and income the following years up until about 60.

Will I fall foul of the recycling rules ?

Thanks

TH1878

madeinireland wrote: »

Ok now you guys have worried me a bit.

Last year I made a significant SIPP contribution of £50k grossed up to £62500 - I had income to support the contribution but the funds were from savings. This year I made a £24k contribution grossed up to £30k - again this was from savings.

I intend to take a full TFLS from the SIPP next March when I am 55 and income the following years up until about 60.

Will I fall foul of the recycling rules ?

Thanks

HMRC will have to prove it was pre planned (which is unlikely) but the easiest way to avoid scrutiny is to either (stop contributions and) defer the TFC until April 2017 or take a mixture of TFC and income, ensuring your TFC doesn't exceed £7,500 next March.

Will you still be working?

madeinireland_2

I don't know if I will be working or not - I had hoped to stop work around the same time but it could bea month or two either way.

I wanted to take to take the full lump sum so that I get it before an incoming gov changes the rules on the TFLS also I may want to crystallise the SIPP with the higher LTA so as to use a smaller % of the allowance before it changes to £1m as I have significant DB scheme as well.

dptp1

jamesd wrote: »

It's £12,500 this year, £7,500 from next but this is only relevant to people who might somehow involve the lump sum recycling rules. The maximum tax free lump sum is 25% of the total pension pot size if you want it all at once and have no worries about the recycling rules.

As kidmugsy wrote, at least starting capped drawdowna nd taking out £12,500 this year would be good.

Beyond that we'd need to know the pension pot size, earned income this tax year, pension contributions for the past three tax years and whether there has been money received from inheritance, lottery wins or some other source other than earnings and how much.

Present pot £126k. I would utilize 14/15 earnings and carry forward rules for addn contibution this tax year of £32k net, money would come from cash ISA, originally from inhertance 6 years ago.

From jamesd subsequent message do I understand that if I waited 2 full tax years to withdraw 25% of the enlarged pot the recycling rules would not apply? I do not intend taking any benefits in 15/16, leaving the fund uncrystallised but as referred to by TH1878 I would take pension income at the same time. This partly answers kidmugsy's point and I appreciate his solution to withdraw £7,500 TFC each year. Would this be as part of flexi drawdown?