Buying pension in small pots to avoid MPAA and LTA issues

garmeg

Brynsam said:

garmeg said:

There is no time limit for personal pension small pots as long as all 3 available are taken before age 75.

Small pot personal pensions don't have to be taken before age 75.

jamesd said:

garmeg said:So transferring £10,000 to NEST and invest in a cash fund, taking a £10,000 small pot, closing the account, reopen account, rinse and repeat seems to be a genuine loophole easy to take advantage of?

Not quite. It appears to be an invitation for NEST to make a possible aggressive tax avoidance report to HMRC and refuse to do future business with you. For HMRC it appears  to invite use of the general anti-avoidance rule.

Although if you take advantage of NEST's upper age limit of 105(!), and spread out the withdrawals, rather unlikely anyone would spot it.

You need to take the small pots before age 75 to avoid crystallisation at age 75 resulting in some LTA usage.
That is the only reason I would use it - to increase the available LTA by £30,000.

Ciprico

I currently have 2 small pots,  and plan to create a third.
Each one I contributed £5k, with tax rebate and a bit of growth should reach just under £10k.
I doubt I'll have any issue with LPA.
For me the (only) benefit was is I lose my job I can "cash" one in to provide money if needs be - and still have possibilty of contributing to pension later if I get another job. 
Apart from avoiding LPA (by 30k max) and MPAA there are no other financial benefits to small pots over a main SIPP...?
I can't see any "agressive" tax avoidance options (saving tax on £30k on a £1M+ stake is not aggressive)
Have I missed something...?

mark55man

I think the aggressive tax avoidance was cycling money through a NEST as many times as you could (given it counts as occupational scheme and occupational schemes are unlimited in number).

I'm quite a bit off the LTA although not impossible over 10 years, so for now an interesting insight into mechanics and useful reminder of the MPAA benefits allowing 30K of emergency money in extremis.

garmeg

mark55man said:

I think the aggressive tax avoidance was cycling money through a NEST as many times as you could (given it counts as occupational scheme and occupational schemes are unlimited in number).

I'm quite a bit off the LTA although not impossible over 10 years, so for now an interesting insight into mechanics and useful reminder of the MPAA benefits allowing 30K of emergency money in extremis.

I would have to do this about 15 times of get rid of my LTA problem. Not an option. Now if there were any others I could easily open it would help. A couple of times per provider you may be able to get away with.

First world problems I admit. Caused by the Brexit referendum and the devalued pound.

Albermarle

I can't see any "agressive" tax avoidance options (saving tax on £30k on a £1M+ stake is not aggressive)
Have I missed something...?

It is because the small pot rule was not designed to be used to avoid paying tax on large pension pots .

Any tax rule that is used in a way that was not originally intended and exploited as a loophole , is potentially a candidate for HMRC to label it aggressive tax avoidance. 

Presumably the relatively small amounts involved ( normally max £7.5K saved ) would not justify them spending that much time on it . Also apparently the loophole is not that well known or used by very many people and would be difficult to identify who was actually taking advantage of it .

jamesd

123mat123 said:

For me the (only) benefit was is I lose my job I can "cash" one in to provide money if needs be - and still have possibilty of contributing to pension later if I get another job. 
Apart from avoiding LPA (by 30k max) and MPAA there are no other financial benefits to small pots over a main SIPP...?
I can't see any "agressive" tax avoidance options (saving tax on £30k on a £1M+ stake is not aggressive)
Have I missed something...?

You are allowed to take a crystallised pot as a small pot, so the ordinary limit is 40k. Take 25% tax free lump sum from £13,333 and put the circa 10k remainder into flexi-access drawdown then use the small pot rule on that. I don't know of a provider which offers this.

In addition you can take an unlimited amount of 25% tax free lump sum without triggering the MPAA. Well, limited to 25% of the lifetime allowance, since the PCLS isn't available above it.

Aggressive was constantly recycling through an occupational pension by transferring in then withdrawing, particularly if accompanied by an inaccurate self-employment claim. It's just my opinion.

garmeg

jamesd said:

123mat123 said:

For me the (only) benefit was is I lose my job I can "cash" one in to provide money if needs be - and still have possibilty of contributing to pension later if I get another job. 
Apart from avoiding LPA (by 30k max) and MPAA there are no other financial benefits to small pots over a main SIPP...?
I can't see any "agressive" tax avoidance options (saving tax on £30k on a £1M+ stake is not aggressive)
Have I missed something...?

You are allowed to take a crystallised pot as a small pot, so the ordinary limit is 40k. Take 25% tax free lump sum from £13,333 and put the circa 10k remainder into flexi-access drawdown then use the small pot rule on that. I don't know of a provider which offers this.

In addition you can take an unlimited amount of 25% tax free lump sum without triggering the MPAA. Well, limited to 25% of the lifetime allowance, since the PCLS isn't available above it.

Aggressive was constantly recycling through an occupational pension by transferring in then withdrawing, particularly if accompanied by an inaccurate self-employment claim. It's just my opinion.

Similarly aggressive is early retired people claiming to be self employed to pay the lower NI stamp to build up a state pension. Teachers who retire early are being advised to do this.

If the loophole is there you cannot blame people taking advantage of it. Not sure if opening and closing NEST umpteen accounts is worthwhile really, maybe risk doing it once, lol.

shinytop

garmeg said:

jamesd said:

123mat123 said:

For me the (only) benefit was is I lose my job I can "cash" one in to provide money if needs be - and still have possibilty of contributing to pension later if I get another job. 
Apart from avoiding LPA (by 30k max) and MPAA there are no other financial benefits to small pots over a main SIPP...?
I can't see any "agressive" tax avoidance options (saving tax on £30k on a £1M+ stake is not aggressive)
Have I missed something...?

You are allowed to take a crystallised pot as a small pot, so the ordinary limit is 40k. Take 25% tax free lump sum from £13,333 and put the circa 10k remainder into flexi-access drawdown then use the small pot rule on that. I don't know of a provider which offers this.

In addition you can take an unlimited amount of 25% tax free lump sum without triggering the MPAA. Well, limited to 25% of the lifetime allowance, since the PCLS isn't available above it.

Aggressive was constantly recycling through an occupational pension by transferring in then withdrawing, particularly if accompanied by an inaccurate self-employment claim. It's just my opinion.

Similarly aggressive is early retired people claiming to be self employed to pay the lower NI stamp to build up a state pension. Teachers who retire early are being advised to do this.

If the loophole is there you cannot blame people taking advantage of it. Not sure if opening and closing NEST umpteen accounts is worthwhile really, maybe risk doing it once, lol.

I would have thought claiming to be self employed when you are not and getting additional NI credits cheaper was fraud rather than avoidance.  Similar to pretending you've paid for something in Sainsburys when you haven't. 

jamesd

garmeg said:

Similarly aggressive is early retired people claiming to be self employed to pay the lower NI stamp to build up a state pension. Teachers who retire early are being advised to do this.

If the loophole is there you cannot blame people taking advantage of it. Not sure if opening and closing NEST umpteen accounts is worthwhile really, maybe risk doing it once, lol.

It's as lawful as taking more out of a church collection than you put in, taking honesty box goods without leaving money or claiming an expensive weighed item is a cheaper one at supermarket checkout. All of them are breaking the law and ordinarily blameworthy, like any other offence. Maybe the person doing it won't be caught this time but that doesn't change the status.

MSE is about legally maximising benefits, not advocating breaking the law.

mark55man

So if you are "technically" self employed in that you have filled in the right forms etc, but are "playing" at it.  eg selling odd bits of craft, or making a little money from photos - in that case is it a crime to claim you are self employed and earn the benefits in terms of NI contributions.

I think it would be a pretty harsh system that punished that, and even though I think its morally wrong I doubt it could be made legally wrong.  Why don't more people do this - well I think its that most people can't afford to "play" at earning an income and therefore are earning credits in their own right.