Adding £120k Lump Sum to pension pot just before retirement

Lorian

You can potentially use more carry forward in the new tax year from April as well.

Simon11

Marcon said:

Could you afford to pay more into your pension now/each year until you retire, which would get you round the problem of not being able to contribute the full £120K at the last minute?

This would be my answer too!

Live off your savings and throw as much of your salary into your pension. I am surprised you are only putting 15k of your 80k salary into it. I would have at least put in 30k per year to not pay 40% tax on my salary in your position.

Mutton_Geoff

[Deleted User] said:

MPC1234 said:

2. Could I add the £120k the day before I retire to take advantage of the tax relief.....and then retire and take my pension the next day/next week, and withdraw the £120k as my tax free lump sum 

The pension recycling rules would apply and so the £120k withdrawn would not be tax-free 

No they wouldn't. The source of the £120k is not from a pension so it's not recycling, and the OP already has £550k in a SIPP, so the total will be £670k after the deposit so technically they could draw £167.50 by crystallising the whole lot. Problem for OP is feeding it in as he/she needs relevant taxable income to match contribution level.

MallyGirl

Mutton_Geoff said:

[Deleted User] said:

MPC1234 said:

2. Could I add the £120k the day before I retire to take advantage of the tax relief.....and then retire and take my pension the next day/next week, and withdraw the £120k as my tax free lump sum 

The pension recycling rules would apply and so the £120k withdrawn would not be tax-free 

No they wouldn't. The source of the £120k is not from a pension so it's not recycling, and the OP already has £550k in a SIPP, so the total will be £670k after the deposit so technically they could draw £167.50 by crystallising the whole lot. Problem for OP is feeding it in as he/she needs relevant taxable earned income to match contribution level.

not quite. pension income is taxable but doesn't count for these purposes

Pat38493

Mutton_Geoff said:

[Deleted User] said:

MPC1234 said:

2. Could I add the £120k the day before I retire to take advantage of the tax relief.....and then retire and take my pension the next day/next week, and withdraw the £120k as my tax free lump sum 

The pension recycling rules would apply and so the £120k withdrawn would not be tax-free 

No they wouldn't. The source of the £120k is not from a pension so it's not recycling, and the OP already has £550k in a SIPP, so the total will be £670k after the deposit so technically they could draw £167.50 by crystallising the whole lot. Problem for OP is feeding it in as he/she needs relevant taxable income to match contribution level.

Not totally clear from the HMRC guidelines on recycling.

If OP put £120K suddenly into the pension as a lump sum, their pension contributions during this tax year and the 2 tax years before and after it would have gone up by a lot more than 30%.

Further, the amount of additional pension contributions was more than 30% of the total tax free lump sum taken out.

The fact that the contribution came from pre-existing savings doesn't seem to prevent an accusation by HMRC of pension recycling (if you read through all the examples on their website there is at least one example where the person paid in money from existing cash before taking out the tax free cash).

Beyond that, if you shove in £120K and then take it straight out the next day, this could be considered by HMRC officer as an indication of "pre-planning" which would normally be your get out of jail free card.

Even if OP just puts in 60K, the same might theoretically apply.  That said, it's often been posted here that nobody has ever come to these boards saying that they had to pay a recycling charge and there are no know court cases on this topic.

It would be safer to put in higher pension contributions gradually through the employer as suggested by other posters.

Exodi

Simon11 said:

Marcon said:

Could you afford to pay more into your pension now/each year until you retire, which would get you round the problem of not being able to contribute the full £120K at the last minute?

This would be my answer too!

Live off your savings and throw as much of your salary into your pension. I am surprised you are only putting 15k of your 80k salary into it. I would have at least put in 30k per year to not pay 40% tax on my salary in your position.

Yes, another one for this.

Salary sacrifice at least out of higher rate tax and subsidise income with savings if needs must.

Not just income tax but NI savings. If it was me, I'd have cracked my SS up to max by now. I contribute similar figures to the OP, but I'm in my 30s (I have some a rather cynical view that the state pension is going to be gutted in a few years/decades).