Downsize to add into a pension?

SomeMadeUpName

HappyHarry said:

In this situation, the OP wouldn’t make the large one off contribution if it were not for the PCLS. 

If HMRC declared it as recycling, as I suspect they would, then of course a defence would be put forward, but I wouldn’t like to bet on it being successful. 

Example three in this link may give some food  for thought: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133850

So again, using the OP as an example:

What would be ok is to pay 2 years of 40K in, then pay nothing (or heavily reduced contrib) in year 3. Then no need tp take PCLS as can use the last £40k of asset sale proceeds. Reduced tax benefit, but staying the right side of the rules.

SomeMadeUpName

HappyHarry said:

In this situation, the OP wouldn’t make the large one off contribution if it were not for the PCLS. 

If HMRC declared it as recycling, as I suspect they would, then of course a defence would be put forward, but I wouldn’t like to bet on it being successful. 

Example three in this link may give some food  for thought: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133850

But again, even after skim reading the manual you link to, I'm not seeing it.

The OP would make 3 payments of £40k into his pension over 3 years. The PCLS isn't big enough to fully cover even 2 of those contributions. How can the HMRC argue he is using the PCLS he receives (later) to fund payments way in excess of it's scale and in advance?

And if they argue only the third is recycled then the counter arguement is that it isn't even an increased contrib at all, it is the same size as the preceeding couple of years.

HappyHarry

I’m not arguing that. Regular contributions of a similar size over three years or longer are unlikely to fall foul of recycling rules.

A significant one off contribution, from a house downsize, followed shortly after by a large withdrawal of tax free cash is likely to fall foul of recycling rules.

Nick9967

Thanks all for all of your input,
Clearly a complicated area that I wasn't aware of it, seams to me that my downsize pot of circa £125k  needs either a simplistic approach or some paid for advise, problem is with paid for advise , after paying you may as well use the simplistic approach!!!

OR 
I down size and then pay in lumps over 3 tax years , if I timed that right I could probably do it over 13 months, that's not to bad , as long as HMRC see this as 3 years then i don't see what the issue is, in particular i wouldn't necessarily need all the 25% in on  go so could spread this a little at least.
Perhaps this is my route to what i need!



Thanks all 

Albermarle

You are talking about using carry forward, and have made the same error that many people make.

Not 'many people' ,but virtually every new poster on the forum on this subject , has a similar misunderstanding .

I wonder how many people actually go ahead and put large sums in their pension without the income to support it because of this issue ?

Presumably when they do then sometime down the line it will get picked up and have to be unwound? Or maybe HMRC might miss it ?

Might be the ability to carry forward will disappear at some point anyway .

SomeMadeUpName

Albermarle said:

You are talking about using carry forward, and have made the same error that many people make.

Not 'many people' ,but virtually every new poster on the forum on this subject , has a similar misunderstanding .

I wonder how many people actually go ahead and put large sums in their pension without the income to support it because of this issue ?

Presumably when they do then sometime down the line it will get picked up and have to be unwound? Or maybe HMRC might miss it ?

Might be the ability to carry forward will disappear at some point anyway .

Agreed, that's definately how I would have assumed it worked (carry forward of both max allowance and qualifying earnings) until this forum educated me to the fact that qualifying earnings have to be in the year despite allowance carrying forward.

Seems to favour the higher earners tbh, as you have to be earning in excess of £40k pa to take any advantage of carry forward.

HappyHarry

SomeMadeUpName said:

Albermarle said:

You are talking about using carry forward, and have made the same error that many people make.

Not 'many people' ,but virtually every new poster on the forum on this subject , has a similar misunderstanding .

I wonder how many people actually go ahead and put large sums in their pension without the income to support it because of this issue ?

Presumably when they do then sometime down the line it will get picked up and have to be unwound? Or maybe HMRC might miss it ?

Might be the ability to carry forward will disappear at some point anyway .

Agreed, that's definately how I would have assumed it worked (carry forward of both max allowance and qualifying earnings) until this forum educated me to the fact that qualifying earnings have to be in the year despite allowance carrying forward.

Seems to favour the higher earners tbh, as you have to be earning in excess of £40k pa to take any advantage of carry forward.

I believe carry forward was originally intended to help higher earners smooth the impact when the annual allowance was reduced from £255,000 in 2010/11 to £50,000 in 2011/12.