Recycling problem

AlanP_2

GunJack wrote: »

The flowchart and explanation in that link all seem to revolve around either upping future contributions to a scheme or replacing savings used to do so, so if the tfls is used for neither and then contributions either cease or return to normal levels it suggests it's not recycling...why's it sooo complex??

Having read it through, yet again, I think you are correct and i don't think this would be recycling.

Go for it OP.

AlanP_2

Mnd wrote: »

AlanP wrote: »

Take a look here for a pretty good explanation https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

Technically, I think you would fail at least one of those tests, but in practice I suspect not - particularly if you spread the contributions over a number of tax
/QUOTE]

That's not a problem though, I think all the tests must be failed to qualify as recycling

Again, on reflection, I think you are correct.

chris1

But doesn't that depend on how much the OP is paying in every year? The other 4 tests would result in recycling, but surely we don't have enough information for the second one (significant increase)?

chris1

GunJack wrote: »

The flowchart and explanation in that link all seem to revolve around either upping future contributions to a scheme or replacing savings used to do so, so if the tfls is used for neither and then contributions either cease or return to normal levels it suggests it's not recycling...why's it sooo complex??

It doesn't matter what the lump sum is used for, it's the fact that it's taken which triggers the 5 tests.

chris1

chris1 wrote: »

But doesn't that depend on how much the OP is paying in every year? The other 4 tests would result in recycling, but surely we don't have enough information for the second one (significant increase)?

Example: normal contribution £10K per annum, one year (within 2 years before or 2 years after the lump sum is taken) you pay in £20K, result recycling, as the increase is more than 30% of normal contribution.

GunJack

My head hurts now......

chris1

GunJack wrote: »

My head hurts now......

That's something we can all agree on!

AlanP_2

chris1 wrote: »

Example: normal contribution £10K per annum, one year (within 2 years before or 2 years after the lump sum is taken) you pay in £20K, result recycling, as the increase is more than 30% of normal contribution.

So Test 1 = NO

Test 2 = NO

Test 3 = YES

Test 4 = NO (no tax free lump sum has been paid into another pension so can't be >30% of it)

Test 5 = NO, as nothing recycled



As flowchart says a NO at any stage ends it - Recycling only happens if TFLS taken from Pension 1 and paid in to Pension 2.

chris1

Hi, I was going by the OP's scenario and the rules they referred to from HL:

---

1• you take tax-free cash from a pension,
2• as a result of taking tax-free cash, the contributions paid into a
pension are significantly greater than they would otherwise have
been (see ‘What counts as a significant increase?’ below),
3• the recycling was pre-planned (HMRC will consider each case
and any evidence which points to preplanning),
4• the amount of tax-free cash you take, together with any tax-free
cash taken in the previous 12 months, exceeds £7,500 and;
5• the cumulative amount of the additional contributions exceeds
30% of the tax-free cash (see example 2).
(I have numbered the conditions.)

---

1. YES they are taking tax free cash from a pension
2. Depends on what was being paid in before (as earlier example) If regular contributions were say 10K and they pay in £20K it's an increase of more than 30%
3. YES pre-planned. (subject to argument with HMRC)
4. YES amount exceeds £7500
5. YES more than 30% of tax free cash.

It applies to tax free cash paid into and taken out of ANY pension, not just the same one (sadly...)

Durban

Thank you all very much for your replies.
However , I am none the wiser as to whether this is doable or not

What is the consensus ?

The lump sum will not be recycled into another pension but we will have increased the contribution considerably to gain the lump sum.


Also , I am confused. If I add 20 percent to £20, 000 , I would have thought that would make it £24,000. It has been mentioned that it would be £25,000. How is this please ?


Thanks again