Trigger getting pulled today - Anyone see any Major mistakes with my action plan???

sgx2000

Many thanks for the reply MK62
Even more confused now

Its starting to look like I am going to have to reconsider adding anything to my pension pot.
As a 25% TFC with my annuity (approx. £80k pot) would be £20K   =... so more than the £7500

Obviously the existing pot would not trigger this, but if I have just read this right, adding anything could potentially be seen as recycling...

Seems irrational that HMRC says you can pay into a pension up to the amount of your salary.  Then wont let you take from that pension....

Looks like I have a lot of reading to do before I start the annuity....
Last thing I need as annuity rates appear to be dropping.

Pat38493

sgx2000 said:

Many thanks for the reply MK62
Even more confused now

Its starting to look like I am going to have to reconsider adding anything to my pension pot.
As a 25% TFC with my annuity (approx. £80k pot) would be £20K   =... so more than the £7500

Obviously the existing pot would not trigger this, but if I have just read this right, adding anything could potentially be seen as recycling...

Seems irrational that HMRC says you can pay into a pension up to the amount of your salary.  Then wont let you take from that pension....

Looks like I have a lot of reading to do before I start the annuity....
Last thing I need as annuity rates appear to be dropping.

Even more confusingly, there is also guidance on the HMRC gov.uk site which says that recycling rules will not catch "normal retirement planning".

Personally I would interpret what you are doing in your OP as normal retirement planning.  Unfortunately it seems like there has never been any court cases about pension recycling so it's very difficult to interpret.

Your argument to HMRC would be that you want to buy an annuity as part of normal retirement planning, and clearly it wouldn't make sense in normal retirement planning to forgo your right to tax free cash when purchasing the annuity - nobody does that.

Also - you can state that it is completely normal to continue to pay into the pension of your employer after taking PCLS, especially if there are matching employer contributions - it would be crazy not do do that.

Also, for what it's worth, since I've been frequenting these forums nobody has ever stated that they were penalized by HMRC for pension recycling.

Example - I asked an IFA on a Q&A session that was being run whether he thought it would be pension recycling to take a large tax free lump sum, pay your mortgage off with that tax free lump sum, and then continue to pay the maximum I can afford into the pension, which might be higher due to not having to make mortgage payments anymore.  His opinion was that this would not be recycling as it's a typical thing that people would do in the year or two before retirement and he would not advise a client against it.  However he also said it's impossible to be 100% sure, but HMRC have to prove that it was pre-planned with the intention of exploiting additional tax free cash from your withdrawal - it's not up to you to prove it was not pre-planned, but up to HMRC to prove that it is.

This is not the same situation as you but it illustrates your comment that the vagueness of the rules means that almost anything could be considered recycling - even if  you don't pay into the pension at all after taking the PCLS, they could claim that you paid more in during the prior years on the knowledge that you would be getting a PCLS later.

michaels

Is it normal for tax relief to be added immediately?  For my sipp it takes 6 to 12 weeks?

MK62

The lack of clarity is probably deliberate......and perhaps gives HMRC considerable leeway here.  Few personal taxation cases end up in court - those that do are likely to involve sums way in excess of what's being talked about here and/or serious and deliberate breaking of tax laws.

That said, the recycling "rules" exist, so each has to decide for themselves........"normal retirement planning" is equally vague.....what exactly is "normal retirement planning"?

adding anything could potentially be seen as recycling...

Only above certain levels of contribution and/or tax free cash.

If you take less than £7500 as tax free cash, then it's not recycling no matter how much you contribute (though that's subject to other limits).

Also, if your total contributions over the reference 5 year window are less than 30% higher than would otherwise have been expected, that's not recycling either, no matter how much TFC you take (again subject to other limits).....

It also appears that if you stagger taking the TFC over a number of years, you can also avoid breaking these recycling rules, since it appears that only the current TFC, plus any TFC in the preceding 12 months are considered. From the Royal London guidance "Is the total of all tax-free cash payments over the 12-month period more than £7,500? If it's not, then recycling hasn't happened"

sgx2000

michaels said:

Is it normal for tax relief to be added immediately?  For my sipp it takes 6 to 12 weeks?

Thanks for the reply

I was assured by Aviva during a phone call that the TFLS would be added straight away.
It was one of the reasons I called them to make sure...

But I obviously wont set the annuity up with L&G until I can see the full amount in my Aviva account

sgx2000

Pat38493

Thank you very much for the reply.

After reading the link kindly sent by MK62
I was starting to reach the same conclusion 

But I have a few days to read some more before the money will be available to add to the Aviva pension

sgx2000

MK62 said:

The lack of clarity is probably deliberate......and perhaps gives HMRC considerable leeway here.  Few personal taxation cases end up in court - those that do are likely to involve sums way in excess of what's being talked about here and/or serious and deliberate breaking of tax laws.

That said, the recycling "rules" exist, so each has to decide for themselves........"normal retirement planning" is equally vague.....what exactly is "normal retirement planning"?

adding anything could potentially be seen as recycling...

Only above certain levels of contribution and/or tax free cash.

If you take less than £7500 as tax free cash, then it's not recycling no matter how much you contribute (though that's subject to other limits).

Also, if your total contributions over the reference 5 year window are less than 30% higher than would otherwise have been expected, that's not recycling either, no matter how much TFC you take (again subject to other limits).....

It also appears that if you stagger taking the TFC over a number of years, you can also avoid breaking these recycling rules, since it appears that only the current TFC, plus any TFC in the preceding 12 months are considered. From the Royal London guidance "Is the total of all tax-free cash payments over the 12-month period more than £7,500? If it's not, then recycling hasn't happened"

Again Thank you MK62

I have a few days to do some more in depth reading..

At this moment
I would be inclined to say I am not putting TFC into my existing pension.
And that it is just my ordinary savings. (which it is)

Therefor how can I be recycling TFC that I do not have

BUT I have a lot more reading to do.....

Once again Thanks MK62 

NoMore

The recycling rule would also apply if, instead of funding the contribution directly from the lump sum, the individual takes the money that pays the contribution out of the available savings and then uses the £35,000 pension commencement lump sum to replenish those savings. A short-term loan in anticipation of the lump sum to repay it would be treated similarly.

From example 3 at PTM133850 - Unauthorised payments: deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: examples to illustrate when the recycling rule applies - HMRC internal manual - GOV.UK (www.gov.uk)

Personally I think you would be ok, I don't think HMRC are going to ever be able to apply these rules to individuals, but may hold firms who advise people to do this sort of thing to account.

sgx2000

NoMore said:

The recycling rule would also apply if, instead of funding the contribution directly from the lump sum, the individual takes the money that pays the contribution out of the available savings and then uses the £35,000 pension commencement lump sum to replenish those savings. A short-term loan in anticipation of the lump sum to repay it would be treated similarly.

From example 3 at PTM133850 - Unauthorised payments: deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: examples to illustrate when the recycling rule applies - HMRC internal manual - GOV.UK (www.gov.uk)

Personally I think you would be ok, I don't think HMRC are going to ever be able to apply these rules to individuals, but may hold firms who advise people to do this sort of thing to account.

Thanks once again NoMore

Just had a cursory 10 minute look at that link.... Interesting examples - will give it a full read tonight.

They all seem to be about taking the lump sum from one pension -  to fund another pension

I am taking money from ordinary savings (premium Bonds)  to add to my pension before starting the annuity claim.
And have no intention of using the lump from the annuity to fund a further pension.

So I am struggling to see how I am recycling....
But I am here to learn & hopefully not 'tick off' HMRC  .. lol

MallyGirl

It 'feels like' you should be alright. You would be able to prove that the source of the extra contribution was from savings. It is not unreasonable, in terms of retirement planning, to maximise the pot before purchasing an annuity. You are then putting the TFLS back into savings, not a pension.