Is it still recycling?

Sea_Shell

So as a non working spouse, I put the max gross of £3600 into my pension, from savings.

At the same time DH has just taken a pension lump sum.... coincidence?


In another example say a couple have £10000 of savings and the spouse wants to use this to pay into their pension, but rather than leave themselves short, they wait until a pension lump sum hits their account (also for £10k in this example), thus replenishing their £10k savings.

Is that "intent" to recycle?

Linton

Sea_Shell said:

1) So as a non working spouse, I put the max gross of £3600 into my pension, from savings.

At the same time DH has just taken a pension lump sum.... coincidence?


2) In another example say a couple have £10000 of savings and the spouse wants to use this to pay into their pension, but rather than leave themselves short, they wait until a pension lump sum hits their account (also for £10k in this example), thus replenishing their £10k savings.

Is that "intent" to recycle?

1) As DH's lump sum withdrawal has not gone into DH's pension it is not recycling.  Recycling requires that the person withdrawing the money gets the benefit from the money recycled.
2) The recycling rules require intent.  ISTM it could be argued that  this is prudent financial management rather than intent to avoid tax.

As far as I know HMRC has never actually penalised anyone for recycling - no cases have been given on this forum.  It seems to me that the rules are just a shot across the bows of anyone planning industrial scale recycling.  The rules are not precise and their full meaning will only be decided by the courts should a case ever reach them.

Workerdrone

Linton said:

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?

In the thread which was kindly posted above there are multiple discussions including confirmation from the inland revenue that they do not regard this as pension recycling, and indication that no such case has ever been brought a discussion in parliament about the intentions of the pension recycling rules and confirmation that the intention was never to target individuals but to prevent pension companies setting up wider schemes to use recycling. I would say the conclusion is you absolutely can give cash to the spouse to put into her own pension and the revenue aren't in the least bit interested.

sevenhills

Workerdrone said:

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.

You cannot put a gift into a pension to get pension tax relief, you can only get tax relief if you have earnings to cover the tax relief. Non-earners can pay in a maximum of £2,880 to which the tax man adds £720

Workerdrone

sevenhills said:

Workerdrone said:

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.

You cannot put a gift into a pension to get pension tax relief, you can only get tax relief if you have earnings to cover the tax relief. Non-earners can pay in a maximum of £2,880 to which the tax man adds £720

Thanks, she will still be working at this point. Looks like I need to retire a bit before her in order to pull the tax free lump sum and allow her to put it into her pension during an earnings year.

jamesd

As long as you're 55 there's no need to wait. Taking tax free lump sums doesn't affect your own ability to make contributions via the MPAA reduction to 4k.

pensionpawn

Workerdrone said:

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.

Or another way to look at it is that you are living off the TFLS to pay your bills etc allowing you to contribute 100% of your pension into pension. Your financial affairs are your own. We did precisely this last tax year which has also enabled my wife to contribute 100% of her final two working years salary into her pension.

MallyGirl

pensionpawn said:

Or another way to look at it is that you are living off the TFLS to pay your bills etc allowing you to contribute 100% of your pension income into pension. Your financial affairs are your own. We did precisely this last tax year which has also enabled my wife to contribute 100% of her final two working years salary into her pension.

I think this is what you meant

Audaxer

Workerdrone said:

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.

I think under the rules it would even be okay for the individual receiving the lump sum to pay the contribution directly into their spouse's pension, as one of the HMRC rules specifically states:
"because of the lump sum, the amount of contributions paid into a registered pension scheme in respect of the individual is significantly greater than it otherwise would be." 
That therefore doesn't prevent the individual receiving the lump sum, paying a contribution to a pension scheme in respect of his spouse. The following pruadviser page specifically states this in the paragraph copied below:
Pension recycling (pruadviser.co.uk)
"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." 

pensionpawn

MallyGirl said:

pensionpawn said:

Or another way to look at it is that you are living off the TFLS to pay your bills etc allowing you to contribute 100% of your pension income into pension. Your financial affairs are your own. We did precisely this last tax year which has also enabled my wife to contribute 100% of her final two working years salary into her pension.

I think this is what you meant

Yes, thank you. Yet another instance of my keyboard dyslexia (no joke)!