Can husband give his 25% tax free sum to me to reinvest in my pension pot?

OldBeanz

Not the way I understand it. Your husband can give you money any time he wants, even his pension lump sum and you can invest the money into your pension up to the limits mentioned above (salary to max of £40k less other pension provision etc). You do not have joint pots as far as the taxman is concerned.
Why do you think you cannot do this?

dunstonh

Interesting. He did say we have option either to pay him hourly for advice, or for him to recommend a product which he'd get management fees or commission on (current pension doesn't support drawdown so we have to move it soon anyway).

Commission hasnt existed since the end of 2012. Its fee only. The exception is SJP and some other tied sales reps who flaunt the rules to still work by a form of commission. The method you describe suggests it is not an IFA but a sales rep.

But we could tell he was far keener to recommend buying a new fund with ongoing management by him than to give creative or general advice about what to put where between us.

As you havent employed him to give advice, you are not going to get the advice until you do. You would expect an indication of the investment style to be covered. After all, a pension is a wrapper containing investments. It is a very important element. It shouldnt drown out everything else but seeing as what you want to do does not require anything creative and is answered with a simple "yes its possible", perhaps that was all that was left to discuss.

PensionTech

To answer the recycling question: this would be an issue if your husband were to pay it in (or have it paid in) to his own pension scheme, but yours is fine. The relevant legislation and guidance restricts only the payment of the lump sum to a pension scheme in respect of the member to whom the lump sum is originally paid.

xylophone

To answer the recycling question: this would be an issue if your husband were to pay it in (or have it paid in) to his own pension scheme, but yours is fine. The relevant legislation and guidance restricts only the payment of the lump sum to a pension scheme in respect of the member to whom the lump sum is originally paid.

Although according to Hargreaves Lansdown's Recycling Factsheet:-

"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."

AnotherJoe

But as said, if husband takes his tax free 25% and spends that on groceries and petrol etc you then have money free to put into your pension. Were you planning in buying a car (or something else major) at some point? A nice holiday? Well, husband buys it . Hey look now you have spare money which of course you prudently put into your pension.

If you dont want to be too brazen about it do it over a couple or three years as part of you naturally raising your pension contributions.

OldBeanz

xylophone wrote: »

Although according to Hargreaves Lansdown's Recycling Factsheet:-

"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."

I think that is being misinterpreted.

I believe it is recycling into your own pension. This is to stop 2 people agreeing to pay money into each other's pensions thereby not recycling into their own pensions but in effect they are. Or giving the money back to your employer to let them make the payment.

It does not stop you paying the money to your partner then the partner paying into their pension.

dunstonh

Like many HMRC rules, there is room for interpretation.

Intention and planning are areas that could see the transaction fall foul. However, pensions are monitored under individual NI numbers. One NI number would register the crystallisation event. The other NI number would have no crystallisation event registered against it.

However, HMRC say:

The recycling rule will apply where an individual envisages recycling a pension commencement lump sum by any means; from simply reinvesting the lump sum back into a registered pension scheme by way of a relievable pension contribution paid by the individual, through to the use of any devices, schemes, arrangements and understandings of any kind, whether or not legally enforceable, that enable the effective recycling of a pension commencement lump sum.

The individual will not be paying into the spouse's pension. The spouse will be paying into the spouse's pension as they received a gift of the money for them to spend as they wish.

xylophone

At first sight, all seems well - a husband may make gifts of any amount to his spouse and she can do whatever she wishes with the money, whether putting it on the favourite in the 2.30 at Epsom or paying into a pension scheme.

However, supposing HMRC took the view that the husband had planned to take the maximum lump sum in order to give his wife the money to pay into a pension scheme in her name so that he could indirectly receive the tax benefits.....

A matter of interpretation?

PensionTech

I believe it is recycling into your own pension. This is to stop 2 people agreeing to pay money into each other's pensions thereby not recycling into their own pensions but in effect they are. Or giving the money back to your employer to let them make the payment.

It does not stop you paying the money to your partner then the partner paying into their pension.

The individual will not be paying into the spouse's pension. The spouse will be paying into the spouse's pension as they received a gift of the money for them to spend as they wish.

Quite right. If it makes things any clearer, this is the actual anti-recycling legislation from the Finance Act 2004.

(1) Where this paragraph applies in relation to a pension commencement lump sum paid to the member, the pension scheme is to be treated as making to the member an unauthorised payment of the appropriate amount.

(2) Subject to [sub-paragraphs (3) to (4A)], this paragraph applies in relation to a pension commencement lump sum if—

(a) because of the lump sum, the amount of the contributions paid by or on behalf of, or in respect of, the member to the pension scheme, or to any other registered pension scheme, is significantly greater than it otherwise would be, and

(b) the member envisaged at the relevant time that that would be so.

If the husband gifts the money to the wife, and she pays it into her pension, it is not paid into her pension by, on behalf of, or in respect of the husband. Married couples are allowed to make such gifts to each other. It is then paid into her pension by, on behalf of, and in respect of her.

Note that it would not be difficult for HMRC to close this down if they intended to consider such transactions a violation of the recycling rules. Much taxation legislation already contains restrictions on transactions involving connected persons - which would indeed include husbands and wives. This could easily be written in here if needed, but it is not.

So without wanting to give a cast-iron guarantee, I think it reasonable to conclude that this would not fall foul of the recycling rules. I myself would be comfortable doing it.

Edit: To respond to this:

However, supposing HMRC took the view that the husband had planned to take the maximum lump sum in order to give his wife the money to pay into a pension scheme in her name so that he could indirectly receive the tax benefits.....

A matter of interpretation?

I don't think there is any room in the law for that interpretation. The husband could indirectly receive the tax benefits if he put it into a help-to-buy ISA for his kids, getting a 25% uplift, and thereby reduce his own contribution to their deposit. The restriction is not on how the original member may or may not benefit from any further tax relief or uplifts granted to other parties. It is on how he may not further relieve himself of his own personal taxation after he has already been relieved on it once over. (In fact it is more that he may not be relieved of personal taxation for the first time if his intention is to be relieved of personal taxation on the same money for a second time - but that is a semantic distinction in principle.)

RickyB2000

but consider this scenario. A husband knows HMRC is going to come after him for a massive tax bill etc for evading tax. So he transfers all his assets into his wife's name. Surley HMRC wouldn't just go that's fine, don't worry about it, pay what you can. If not, then surely HMRC could examine gifts if they felt the spirit of the law was broken.

In this case, the wife would not have made such a high pension contribution if it wasn't for the tax free lump sum. That appears to be the key measure. Though of course if more than the tax free lump sum was taken, it would become harder to say whether it was the tax free bit that was recycled.

Of course whether HMRC cares if it happens, has the resource to actually investigate or even wants this to happen is not clear. Anyone got any references to support either?