Is withdrawing from one pension and then depositing to another pension and getting 20% topup poss?

izawa

Hello,

A person (retired) asks whether it is possible that she withdraws 2500 from her pension pot (25% allowable tax free withdrawal) and then at the same time deposits 2500 to another pension scheme thereby getting 20% gov topup. I said this is not possible as it sounds like fraud. This way anyone could get 20% extra straight.

Please tell me I am right.

Marcon

izawa said:

Hello,

A person (retired) asks whether it is possible that she withdraws 2500 from her pension pot (25% allowable tax free withdrawal) and then at the same time deposits 2500 to another pension scheme thereby getting 20% gov topup. I said this is not possible as it sounds like fraud. This way anyone could get 20% extra straight.

Please tell me I am right.

Sorry, but you're not right. Provided she doesn't fall foul of the 'recycling' rules (and £2500 should be fine), she can do just that if she's under the age of 75.

Dazed_and_C0nfused

But it isn't a 20% "topup", it's 25%.

If she personally added £2,500 then £625 would be added in basic rate tax relief.

Making a gross contribution of £3,125 (29% of which is the £625).

izawa

The exact amount told was 2880. This makes investment straight 3600

Dazed_and_C0nfused

izawa said:

The exact amount told was 2880. This makes investment straight 3600

Which is a 25% "topup"

xylophone

Even if a person has no relevant earnings, as long as  he/she is aged under 75 , a net contribution of up to £2880 per annum may be made to a personal pension and tax relief of up to £720 will be claimed by the pension provider and added to the pot.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

izawa

Even though the person withdraws from another pension? To put into another pension?

molerat

https://techzone.abrdn.com/public/pensions/tech-guide-recycle-tax-free-cash

Assuming the recycling was pre-planned, an unauthorised payment charge will apply to the tax free cash taken if all of the following limits are exceeded.

• The tax free cash (including any tax-free cash taken in the past 12 months) is more than £7,500 and
  
• The total of the increases in pension payments in the tax year (and the two tax years either side) is at least 30% of the tax free cash taken, and 
• The pension payments made are significantly larger (generally 30%) than might be expected.

If recycling is kept within these limits, tax free cash can be used to make payments into a pension scheme (even with pre-planning).

It's also worth noting that tax free cash can be used to fund someone else's pension without falling foul of the tax free cash recycling rules - for example, making payments to a pension for a spouse/partner, child or grandchild. The rules only apply when the individual is recycling tax free cash back into a pension in their own name.

pensionpawn

izawa said:

The exact amount told was 2880. This makes investment straight 3600

Persons A & B are married. Person A takes enough of their TFLS to allow person B to effectively contribute 100% of their salary for the year into their pension (subject to limits etc). This is perfectly within the rules.

Marcon

izawa said:

Even though the person withdraws from another pension? To put into another pension?

Yes. You need to accept you're wrong here - your friend is right.

Pat38493

Marcon said:

izawa said:

Even though the person withdraws from another pension? To put into another pension?

Yes. You need to accept you're wrong here - your friend is right.

Well to be fair, it does seem a bit strange that you are allowed to do that, but yes it’s true.   But only with the relatively trifling amounts discussed above.  If you try to do it with larger amounts you will certainly run into problems.