Is this recycling or legitimate

billywhizz1966

I have recently left employment

I have agreed in 2022/23 to do work for my previous employer on a self employed basis

This is likely to result in me earning £12,500 which I can take tax free. However, if I paid this money into a SIPP in full, can I withdraw an equivalent amount in full as an income from that SIPP that I have already set up from my previous employment having already taken the tax free 25% amount out. If yes, I assume this would then allow me in drawdown the new contribution less the tax free element meaning I benefit by circa £2,500 by doing this which could be repeated every year if I repeated it. Is my logic correct  ?     

zagfles

If you earn £12,500 that is the max gross you can pay into a SIPP and get tax relief, so max net would be £10,000. Paying into a SIPP doesn't reduce your taxable income.

But once you withdraw any taxable income from a SIPP you trigger the MPAA which is £4k. Google "MPAA triggers" for more info. Note that "taxable" means income which counts towards your income tax calculation, ie even if it's within the personal allowance and so no tax is actually paid. So anything other than the 25% PCLS taken from a SIPP will trigger the MPAA.