Is it still recycling?

Workerdrone

Just a pure hypothetical, I have no intention of doing this but it's a mental itch I'd like scratched.

So I know taking money out of a pension and then putting it back in is definitely recycling. But what about the below scenario.

Husband takes lump sum and effectively crystallises pension
Transfers between husband and wife are tax free
Wife receives big chunk of cash
Wife puts cash into her own pension which is not yes crystallised or in drawdown.
Wife then receives the benefit of tax relief on the money.

I just can't seem to find anything specific in the rules that says this can't be done?

sevenhills

Workerdrone said:

Wife puts cash into her own pension which is not yes crystallised or in drawdown.
Wife then receives the benefit of tax relief on the money.

If its less than £7,500 and wife has earnings to account for pension contribution, then that is ok?

Linton

Tax free money taken from one's pension and paid intro a spouses pension is not classed as Pension Recycling by HMRC. 

See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pensions-recycling/ where you will find:

An individual may use their PCLS to pay a pension contribution on behalf of another, eg spouse, civil partner, child etc and this cannot be considered PCLS recycling. It needs to be the same individual, who receives the PCLS and benefits from the new pension contribution, for PCLS recycling to be a possibility.  

Note that the pension contribution must be covered by the spouses earnings and must not break the spouses £40K limit.

zagfles

Long and slightly heated discussion on this here: https://forums.moneysavingexpert.com/discussion/5456781/can-husband-give-his-25-tax-free-sum-to-me-to-reinvest-in-my-pension-pot/p1

Workerdrone

Linton said:

Tax free money taken from one's pension and paid intro a spouses pension is not classed as Pension Recycling by HMRC. 

See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pensions-recycling/ where you will find:

An individual may use their PCLS to pay a pension contribution on behalf of another, eg spouse, civil partner, child etc and this cannot be considered PCLS recycling. It needs to be the same individual, who receives the PCLS and benefits from the new pension contribution, for PCLS recycling to be a possibility.  

Note that the pension contribution must be covered by the spouses earnings and must not break the spouses £40K limit.

I see seven hills mentions £7500 but you mention the 40k limit. Im more inclined to believe the 40k limit

Linton

Workerdrone said:

Linton said:

Tax free money taken from one's pension and paid intro a spouses pension is not classed as Pension Recycling by HMRC. 

See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pensions-recycling/ where you will find:

An individual may use their PCLS to pay a pension contribution on behalf of another, eg spouse, civil partner, child etc and this cannot be considered PCLS recycling. It needs to be the same individual, who receives the PCLS and benefits from the new pension contribution, for PCLS recycling to be a possibility.  

Note that the pension contribution must be covered by the spouses earnings and must not break the spouses £40K limit.

I see seven hills mentions £7500 but you mention the 40k limit. Im more inclined to believe the 40k limit

These are different limits for different things:

The £7.5K limit refers to the fact that HMRC dont bother about small amounts of recycling.

The £40K and earned income limits refer to amounts that can be placed into anyone's pension in a tax year.    So your wife will be limited in the amount of money that she can pay into her pension for which whe will receive receive a tax rebate.  If you dont get the tax rebate, paying into a pension is probably pointless since you are taxed when you withdraw the money.

Workerdrone

Thanks for the thread. It was a good read. It answers my question. A transfer of lump some by way of gift to a spouse who then invests it in their own pension and receives tax relief does not break the rules as they clearly state.

The recycling rule will apply where an individual envisages recycling a pension commencement lump sum by any means; from simply reinvesting the lump sum back into a registered pension scheme by way of a relievable pension contribution paid by the individual, through to the use of any devices, schemes, arrangements and understandings of any kind, whether or not legally enforceable, that enable the effective recycling of a pension commencement lump sum.

The individual will not be paying into the spouse's pension. The spouse will be paying into the spouse's pension as they received a gift of the money for them to spend as they wish.

Sea_Shell

How would HMRC ever distinguish between what was a gift to spouse from pension or what was from savings?  Especially if the money was all temporarily held in a savings account and mixed with existing savings.

Workerdrone

Sea_Shell said:

How would HMRC ever distinguish between what was a gift to spouse from pension or what was from savings?  Especially if the money was all temporarily held in a savings account and mixed with existing savings.

It's a good point. I suppose if there was a transfer in for an exact amount to the penny then a transfer to the wife pension pot in the same amount they could make the argument it was the same money, but it seems they aren't interested in individual cases.

ggmf

Sea_Shell said:

How would HMRC ever distinguish between what was a gift to spouse from pension or what was from savings?  Especially if the money was all temporarily held in a savings account and mixed with existing savings.

Not sure if you made a GDPR request as per this link - https://forums.moneysavingexpert.com/discussion/6267734/is-there-a-really-detailed-online-method-to-check-nics/p1.

If you did you will see that it lists details of your bank and savings accounts, if you are taking a withdrawal from a pensions then I would guess that an RTI is submitted, it would not be hard for HMRC to find out.

Linton

The issue is not whether you give the money to your wife or not but rather where it ends up.  So in particular you cannot give the money to your wife for her to put it into your pension.

As to how would HMRC know - all they need to know is whether a large sum was taken from your pension and a similar large sum was paid into your pension.  You would need to show that the money was not recycled. Ultimately the case could go to the courts.  Fancy undergoing an HMRC investigation followed by a lengthy court case?