Private pension and Recycling rule,advice and help

happyhero

Hi, I am living off income from savings/investments within ISA/SIPP and so have no income as far as contributing to my SIPP is concerned and so I am limited to £3600 gross contribution per year that I can make. I’m not taking any pension yet and I am 57.

So at 57 I am trying to maximise my investments so that I can eventually use my SIPP as a drawdown income and live off my ISA too. So until I start drawing an income from a pension on a regular basis and start paying 20% tax on that income in a few years time, all I am interested in is using my SIPP to its best. This has made Recycling an important subject to me as I don’t want to break any rules and suffer any fines etc.

I have asked for and received literature from my SIPP provider regarding Recycling and have been reading lots of examples etc online on the HMRC site and others as I am trying to understand it as fully as possible.

Many examples are about figures of £100,000 or more whereas I am dealing with much smaller amounts.

Is it possible to avoid triggering the recycling rule if I make sure I never take more than £7,500 as tax free lump sum in any 5 year period, ie is that enough to prevent this triggering even if I intentionally use some or most of my tax free money to refund my SIPP because that’s the way it seems to read, but I am not confident on this?

The reason I ask is because due to my ISA I can afford to keep filling my SIPP up every year with £2880 (£3600 gross) but obviously it makes sense to use the 25% tax free money first as its laying there. But then am I not intentionally using the 25% tax free money to refund my SIPP which they don’t like?

I could insure I don’t ever take £7500 in a 5 year period. I don’t want to be restricted to £7500 but I could do that if that is what is required to stay out of Recycling trouble.

I should add it has been pointed out to me, that it is at this time when I should keep emptying my SIPP within the restriction like recycling etc as it is only now and for the next few years before I start pay tax on a pension income that I can take amounts up to my personal allowance of £11,500 .

Efficiently, I can save paying tax on my SIPP income and use this money to fund my ISA and SIPP providing for the time when I use it as a pension in a few years. So that is why I keep trying to empty my SIPP, the money isn’t wasted but rather moved around.

I am not worried about the £4000 MPAA as I have already triggered this last tax year by accessing the 75% non tax free amount in my drawdown account, albeit within my personal allowance and beside which I can only contribute £3600 gross each year anyway.


I want to ask for help about this subject for my wife too but lets concentrate on me first please.


Any help, advice would be greatly appreciated.

Mnd

I did a flowchart thing where the first question was will you take more than 7500 out, answer no...not recycling, so I think you would be ok

Scrounger

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/
OK for up to £7,500 TFC per 12-month period :beer:

Scrounger

vm2pensioner

Yes, but link also reminds you that:

"It is worth noting however that the HMRC do not classify income from pension plans as relevant UK earnings, and therefore the member would need to have relevant UK earnings from another source so that they are eligible for tax relief on the re-invested payments."

and OP says "Hi, I am living off income from savings/investments within ISA/SIPP and so have no income as far as contributing to my SIPP is concerned".

Audaxer

vm2pensioner wrote: »

Yes, but link also reminds you that:

"It is worth noting however that the HMRC do not classify income from pension plans as relevant UK earnings, and therefore the member would need to have relevant UK earnings from another source so that they are eligible for tax relief on the re-invested payments."

and OP says "Hi, I am living off income from savings/investments within ISA/SIPP and so have no income as far as contributing to my SIPP is concerned".

You can still contribute up to £3,600 gross each year to a SIPP when you have no earnings.

vm2pensioner

Audaxer wrote: »

You can still contribute up to £3,600 gross each year to a SIPP when you have no earnings.

Which is what the OP said at the start of the post! That's the most he can put in.

happyhero

Scrounger wrote: »

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/
OK for up to £7,500 TFC per 12-month period :beer:

Scrounger

The thing is with what I am doing, it will end up as more than £7500 over more years as I empty my SIPP and I read that the Recycling check is taken over a 5 year period if I understand correctly. So even though I am talking about relatively small amounts, if I take £3,000 every year for say 3 years I have taken £9,000.


Somebody correct me if I am wrong here but they take the 2 years before and the 2 years after the 25% is taken as the 5 year period and I could have taken £9,000 in the example above in that time. I plan to take something every year if all goes to plan as it will get topped up by me putting the £3,600 gross every year putting maximum in and taking as much out as possible while I am a non-tax payer.


I realise its only 25% I can take so that will only equate to smaller and smaller amounts of money as the SIPP pot goes down with only the £3,600 being added every year.
So what I am saying is, I think I have to look at 5 year periods rather than thinking I can just take £7,500 out every tax year.


I won’t have enough to keep taking £7,500 anyway but what I do take could amount to more than £7,500 over a 5 year period.


The answers in this thread interest me not only for my SIPP but for my wife’s too as she has more to do this with as I have been transferring some small pensions into her SIPP making it grow and control the investments within it.


This is where I am getting a bit sketchy on my understanding, will I trigger the Recycling rule if for the next few years I put in £3,600 every year and take out a tax free sum of 2 or 3 thousand until it’s as empty as it can get it?


The link you gave me Scrounger, says in step 2 of the flow chart “Is the amount received over 12 month more than £7,500” and if you answer NO, then it implies you are off the hook and can take £7,500 every year and not cause a problem


but


I wish it was as easy as that, if you then read further down the link and look at Case 2, the sums withdrawn over 2 years are added together so do I take it that all tax amounts taken can be added up over a 5 year period when checking for recycling?

Audaxer

vm2pensioner wrote: »

Which is what the OP said at the start of the post! That's the most he can put in.

I know he said that. I thought your post was indicating that because the OP had no earnings, he could not make any contributions to his SIPP.

Audaxer

happyhero wrote: »

This is where I am getting a bit sketchy on my understanding, will I trigger the Recycling rule if for the next few years I put in £3,600 every year and take out a tax free sum of 2 or 3 thousand until it’s as empty as it can get it?


The link you gave me Scrounger, says in step 2 of the flow chart “Is the amount received over 12 month more than £7,500” and if you answer NO, then it implies you are off the hook and can take £7,500 every year and not cause a problem


but


I wish it was as easy as that, if you then read further down the link and look at Case 2, the sums withdrawn over 2 years are added together so do I take it that all tax amounts taken can be added up over a 5 year period when checking for recycling?

Have a look at the Recycling Factsheet which is linked from this HL page:
http://www.hl.co.uk/help#sipp,-drawdown-and-annuity/sipp/retiring/what-is-pension-recycling

LULULU1

Blimey, this sounds a tricky subject. Can anybody help with this situation.

When I retire I will receive a lump sum of about 50k. Can I then just pay this into my wife SIPP and will she then receive tax relief. She will still be working and not drawing any kind of pension and I will also be working.

Thanks you

Scrounger

happyhero wrote: »

The link you gave me Scrounger, says in step 2 of the flow chart “Is the amount received over 12 month more than £7,500” and if you answer NO, then it implies you are off the hook and can take £7,500 every year and not cause a problem

Yes, no problem.

happyhero wrote: »

I wish it was as easy as that, if you then read further down the link and look at Case 2, the sums withdrawn over 2 years are added together so do I take it that all tax amounts taken can be added up over a 5 year period when checking for recycling?

In Case 2, Jim takes £7000 and then a further £10,000 just a month later therefore exceeding £7,500 in the 12-month period. :eek:

Your suggested yearly TFC withdrawals would not be added together (providing they are => 12 months apart).

Scrounger