Drawdowns etc. and doing it more than once

[Deleted User]

55 a few months ago so did a drawdown on my pension. (So I got 25% in cash, the rest went into a special crystalised pot). Basically to pay debts.

I still work as an IT contractor and, because of the way it works (I have to pay my own employers NI) it pretty much works out as put money in pension or lose almost 50% it in employers NI/employee NI/tax. So I do put a large chunk in.

So I've got 2 pots now. The crystalised one, and there new one (thats building up last 6 months since I took it all out in march).

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

I have increased my contribs but only because I got a rate rise in work. Just concerned that if I take say, another few £K out I'd be caught by this if I ever increase contribs again?

SVaz

You’re fine.
You took the money out to pay debts,  not to recycle it back into your pension,  you have a paper trail to prove this.  
To prove pension recycling, they have to prove it was a deliberate act.  

I wouldn’t be doing it again though,  that would look suspicious,  they look at 2 years either side to see if there’s a pattern of increasing contributions if it’s deemed worthy of investigation.
To my knowledge, nobody has been ‘done’  under these rules,  there’s certainly no chatter in accountancy circles.   That’s not to say people haven’t been investigated though 😉

Albermarle

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

[Deleted User]

SVaz said:

You’re fine.
You took the money out to pay debts,  not to recycle it back into your pension,  you have a paper trail to prove this.  
To prove pension recycling, they have to prove it was a deliberate act.  

I wouldn’t be doing it again though,  that would look suspicious,  they look at 2 years either side to see if there’s a pattern of increasing contributions if it’s deemed worthy of investigation.
To my knowledge, nobody has been ‘done’  under these rules,  there’s certainly no chatter in accountancy circles.   That’s not to say people haven’t been investigated though 😉

Yeh to be honest, last time I increased contributions was because of a pay rate increase so I guess I can justify that.

One thing though that does strike me. OK, currently you're contributions are x% because thats all you can pay because you need the income to pay credit card bills.

So you do what I did, drawdown and pay off the credit card bills. You now do have spare cash.
Not 100% sure if its ok then to increase contributions because, even if its not directly, you're, in effect, paying money back into the pension that would have been used on the credit card which you paid off using the pension money.

Or am I overthinking it a bit?

[Deleted User]

Albermarle said:

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

Of course, appreciate "spending now" is generally not the best idea for cash you're going to need when you do retire.....

Thanks for the link I'll have a look at that.

[Deleted User]

Albermarle said:

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

Yeh do have a little experience of HMRC and how they do things (I'm an IT contractor and they are my end client!)
How they do things can be a bit "random" for want of a better word.

dealyboy

[Deleted User] said:

Albermarle said:

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

Of course, appreciate "spending now" is generally not the best idea for cash you're going to need when you do retire.....

Thanks for the link I'll have a look at that.

Tax free lump sums under £7,500 in a tax year are disregarded if reinvested (in PTM133810).

Albermarle

[Deleted User] said:

Albermarle said:

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

Yeh do have a little experience of HMRC and how they do things (I'm an IT contractor and they are my end client!)
How they do things can be a bit "random" for want of a better word.

AIUI, the rules about recycling where put in place to stop organised tax abuse on a large scale. So was never intended ( and does not seem to be used very much . if at all) to pursue such smaller edge cases like you have detailed.
But don't quote me on that if the taxman comes knocking on your door !

[Deleted User]

Albermarle said:

[Deleted User] said:

Albermarle said:

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

Yeh do have a little experience of HMRC and how they do things (I'm an IT contractor and they are my end client!)
How they do things can be a bit "random" for want of a better word.

AIUI, the rules about recycling where put in place to stop organised tax abuse on a large scale. So was never intended ( and does not seem to be used very much . if at all) to pursue such smaller edge cases like you have detailed.
But don't quote me on that if the taxman comes knocking on your door !

Apparently they've never ever caught anyone on this rule.

It is complicated though I must admit. Especially the bit about increased contributions.......

I see one important bit is "planned". I can see how this is easy to prove if you take £100K out and then dump £100K back in. In my case I can probably show where the money went (i.e. paid off credit cards)

The increased contribs bit I can't see how they could ever prove this. If you take a sum out to pay off a debt, thus leaving you with more income (because you don't have to pay the debt) it seems obvious that you might increase contributions.

Without this, there are many reasons, as you get older and closer to retirement that you'd increase anyway.

To be on the safe side, I am going to check how much I've contributed last few years, and see how much more I can contribute.

[Deleted User]

dealyboy said:

[Deleted User] said:

Albermarle said:

Can I drawdown this also? (i.e. take 25% cash and crytalise the rest). Is there a limit to how many times I can do this? e.g. once a year?

There is not really a limit but depends on what the  provider is prepared to do and how much hassle each withdrawal is . Probably make more sense to do it periodically.

Be aware that having some tax free cash left when you retire, can help with tax planning. Plus of course you will have a bigger pension pot still.

One thing I've heard of is "bed and breakfasting" where HMRC take a dim view of taking pension money like this and feeding it back in as pension contributions (so avoiding tax).

The correct term is recycling. There are various rules you have to check that you are not breaking.

PTM133810 - Unauthorised payments: Deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: overview - HMRC internal manual - GOV.UK (www.gov.uk)

Although as mentioned in the previous post, pursuing 'small fry' on this issue does not seem to be a HMRC priority.

Of course, appreciate "spending now" is generally not the best idea for cash you're going to need when you do retire.....

Thanks for the link I'll have a look at that.

Tax free lump sums under £7,500 in a tax year are disregarded if reinvested (in PTM133810).

It was £55K in April (pity it didn't come through before end of last tax year but I was only 55 in march).

I think I'll wait until next tear year for the next one (which will be less than £7.5K)