Recycling and annual allowance queries

jamesd

fifeken wrote: »

I'm planning to take out £7,500 TFLS from a pension pot and using it for day to day expenses for a few months, whilst increasing my salary contributions into a Salary Sacrifice pension. I'm limiting it to £7,500 as this appears to be the max amount to ensure I won't fall foul of that particular recycling rule.

That 7500 is allowed once per rolling 12 month period so you could do more if you have time. Any tax free lump sum you take during the 12 months counts towards this, including any you were planning to take later in the tax year or within 12 months in the next. Which in practice means taking a maximum of 7500 tax free and 22500 taxable during the 12 months.

You can probably use 0% for purchase credit cards or savings to help you to stay within the limits.

There are other potentially higher limits if 30% of the total available lump sum is more than 7500.

The MPAA starts to apply from the first flexible withdrawal in the tax year, which for you will be taking taxable money from the drawdown pot. So you can pay in 40k before (assuming not reduced because of high income) or up to 4k after and up to 36k before. If you have carry-forward available you can use that before as well.

Taking money with the small pots rule doesn't trigger the MPAA so that's another potential tool to get up to 10000 taxable out, up to three times. Has to be everything in the pot so transfers may be needed to set that up. Though some places would let you take a tax free lump sum, place the 75% into a drawdown account then let you use the small pots rule on that.

fifeken

jamesd wrote: »

That 7500 is allowed once per rolling 12 month period so you could do more if you have time. Any tax free lump sum you take during the 12 months counts towards this, including any you were planning to take later in the tax year or within 12 months in the next. Which in practice means taking a maximum of 7500 tax free and 22500 taxable during the 12 months.

You can probably use 0% for purchase credit cards or savings to help you to stay within the limits.

That's given me food for thought, as my plan counted on taking more TFLS and starting drawdown within one year. I'll need to work out if savings and 0% cards is best for this, or if I should take the crystallised amount of £22,500 or a mix of these. Either way, it's good to know it's a rolling 12 month I need to use.