Recycling rules

Organgrinder

It really is a nonsense piece of legislation. Take £100k in two lump sums of £10k and £90k.....depending on the order you take them you can reinvest £3k or £27k.

Just ridiculous!

Pat38493

Organgrinder said:

It really is a nonsense piece of legislation. Take £100k in two lump sums of £10k and £90k.....depending on the order you take them you can reinvest £3k or £27k.

Just ridiculous!

I'm not totally sure about this, but I don't think there is anything in actual legislation (laws passed in parliament) which says that.  I think the law probably just says you can't deliberately recycle your pension.  There are then "guidelines" published by HMRC which seek to explain what they would deem to be actual recycling, but even these guidelines are vague and HMRC has (probably deliberately) refused to clarify it any further.  

For DIY investors who are managing their own affairs, as I said before, I think HMRC would have a pretty hard time proving the last part of the test - that it was pre-planned and deliberate.  If it was IFAs doing it consistently with all their clients it might be easier to make a case.

Linton

Pat38493 said:

Organgrinder said:

It really is a nonsense piece of legislation. Take £100k in two lump sums of £10k and £90k.....depending on the order you take them you can reinvest £3k or £27k.

Just ridiculous!

I'm not totally sure about this, but I don't think there is anything in actual legislation (laws passed in parliament) which says that.  I think the law probably just says you can't deliberately recycle your pension.  There are then "guidelines" published by HMRC which seek to explain what they would deem to be actual recycling, but even these guidelines are vague and HMRC has (probably deliberately) refused to clarify it any further.  

For DIY investors who are managing their own affairs, as I said before, I think HMRC would have a pretty hard time proving the last part of the test - that it was pre-planned and deliberate.  If it was IFAs doing it consistently with all their clients it might be easier to make a case.

Yes and until there is a case brought before the courts it will remain vague as to whether HMRC rules and approach are in line with the legislation.

I think the best action for a private investor is just to steer well clear.

sevenhills

Linton said:

Yes and until there is a case brought before the courts it will remain vague as to whether HMRC rules and approach are in line with the legislation.

I think the best action for a private investor is just to steer well clear.

It would be ridiculous if someone was convicted of recycling a few thousand, whilst people are allowed to put over a million into their pensions.

HMRC is not interested in these rules, in my opinion.

ader42

Surely one would expect HMRC to combine the lump sums and combine the contributions. 

ader42

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling#:~:text=Pension%20recycling%20is%20where%20a,as%20a%20tax%20relievable%20contribution.

“ Pension recycling is where a pension commencement lump sum (PCLS), or flexible pension income, is recycled back into a pension as a tax relievable contribution”

So not just the first withdrawal.

Audaxer

ader42 said:

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling#:~:text=Pension%20recycling%20is%20where%20a,as%20a%20tax%20relievable%20contribution.

“ Pension recycling is where a pension commencement lump sum (PCLS), or flexible pension income, is recycled back into a pension as a tax relievable contribution”

So not just the first withdrawal.

According to the detailed guidance further down that same page under heading 3), it does mean just the first PCLS:
Pension Recycling | PruAdviser (mandg.com)
"Importantly, this rule refers to the single PCLS payment received at this benefit crystallisation event. It is not the total amount of PCLS paid in the 12 month period considered above."

Organgrinder

In the guide in mentions two lump sums. The first £62k and the second £30k.

The recycling occured according to the article because the new contributions exceeded 30% of the second withdrawal. 

This is what I find unfair because recycling is dependent on the order you take lump sums.

In this scenario £9k is the limit that can be recycled in the time frame given by the rules. Had it been the other way around it would be £18.6k.

Pipthecat

This a great vid on the topic https://youtu.be/ql_a2VMzAj8

ader42

I suspect the order doesn’t matter and what matters is that one of the PCLSs was £30k.

I.e. he would still fail the tests if the first PCLS was £30k and the second one £62k because they would look at each PCLS individually.

I also think it’s just because they would look at each pension individually, i.e. the DB separate from the DC.

I believe that they would combine multiple PCLs from the same pension so a £30k PCLS is the same as two £15k PCLSs in the same year from the same pension.