Pension Recycling

Purbeckfossil

My wife and I are shortly retiring and are looking to use the "carry forward" facility to top up our pension contributions for the current & previous 3 tax years. My wife's back contributions are circa £160K - mine are about £80K. I would like to do this by first making a full contribution into my wife's SIPP, wait until HMRC have made their contribution, then take her 25% cash and use that towards my contribution. So, the question is "Would this be seen as pension recycling, even though it will be funding my pension, not hers?

Or, would I need to make both our contributions before taking tax-free cash from either SIPP.

Thank You

HappyHarry

What you are intending to do is not pension recycling, and is perfectly above board.

Are you aware that you will only get tax relief to a limit of your earnings? I may be misreading your post, but if you are looking to contribute £128k (£160k gross) to your wife's pension, then she needs earnings of £160k this tax year to accommodate that.

You also need to check how long the provider might take to add the HMRC contribution to the pension. Some providers do it immediately, some wait until they receive the credit from HMRC, which can take a few months.

Paul_Herring

Purbeckfossil wrote: »

My wife and I are shortly retiring and are looking to use the "carry forward" facility to top up our pension contributions for the current & previous 3 tax years. My wife's back contributions are circa £160K - mine are about £80K.

To reiterate Harry's point, the carry forward is for potential tax relief - not the absolute maximum amount you can contribute regardless of anything else (from savings or someone else's wages for example).

Your maximum tax-free contributions for this tax year are still restricted to your gross pay for this tax year (especially if your tax relief amount is greater than that.)

Purbeckfossil

Thank you both for your replies. On the recycling issue, I was reading the Factsheet on the Hargreaves Lansdown site and this came up

"IS THERE A WAY AROUND RECYCLING?
The recycling rule applies where you plan to recycle taxfree
cash by any means, including indirectly or even via
another person. In short, if the intention is there and the
result is a significant increase in pension contributions,
this could be considered recycling."

so I was wary that I might be caught up if my wife's taxfree cash was used to fund my contribution indirectly.

On the carry forward issue, I am assuming that for tax years 2015-16 and 2014-15 the max is £40K - and for 2013-14 & 2012-13 it is £50K - as long as you have earned income to that level, less any pension contributions in those years - as long as you make a full contribution in the current tax year

bigadaj

No, the earned income has to be in the current tax year, you can't carry forward earnings from previous tax years, only the unused allowance.

So as previously stated your wife would have to have earnings of £160k this tax year.

HappyHarry

"IS THERE A WAY AROUND RECYCLING?
The recycling rule applies where you plan to recycle taxfree
cash by any means, including indirectly or even via
another person. In short, if the intention is there and the
result is a significant increase in pension contributions,
this could be considered recycling."

so I was wary that I might be caught up if my wife's taxfree cash was used to fund my contribution indirectly.

My understanding is that providing it doesn't go back into one of her pensions, you are ok. I believe that the above refers to the possibility of her giving the tax free cash to you, and then you add it to her pension scheme.

The guidance from HMRC appears to indicate this: http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm09208020.htm

However, I would encourage a second opinion.

Any other posters out there fancy putting their interpretation on this?

Purbeckfossil

Thank you bigadaj & HappyHarry, My mistake is that we have to have earnings in the current year to cover the total carry forward amount for the previous years, which we don't.

So, although we can put in 100% of this year's earnings, that's it for us. Now, any issues on recycling are N/A although I understand that the outline I gave should be fine to avoid recycling if anyone is in such a position.

I will look forward to a lesser contribution from HMRC.