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Pension Recycling am I over worrying?
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Also - most or all of the HMRC examples have wording like “the individual did this with the intention of using it to pay significant increased contributions” or other similar wording.0
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Andreg said:Also - most or all of the HMRC examples have wording like “the individual did this with the intention of using it to pay significant increased contributions” or other similar wording.
"It should be noted that very few lump sum payments will be affected by this recycling rule. Pension commencement lump sum payments will not be caught if they are paid as part of an individual’s normal retirement planning."
"The recycling rule is not intended to apply to individuals who simply increase contributions to registered pension schemes (or who have increased contributions paid in respect of them, such as by way of salary or redundancy sacrifice) with the intention of increasing the benefits that will ultimately be paid from those schemes, particularly a pension commencement lump sum. This is provided no pension commencement lump sum is actually used as the means to increase those contributions, whether in a direct or indirect way. This is because the recycling rule applies only where contributions are significantly increased ‘because of’ the lump sum."
"The requirement for pre-planning as a trigger for the recycling rule means that an individual has to make a conscious decision (and will therefore be aware of that fact) to use a pension commencement lump sum as the direct or indirect means to pay significantly greater contributions to a registered pension scheme. Where, on the other hand, an individual takes a lump sum and only subsequently decides to use it to pay greater contributions, there is no pre-planning. The onus is not on that individual to prove the absence of the intention to use the lump sum to pay the significantly greater contributions when the lump sum was taken. Instead, the onus is on HMRC to show that pre-planning took place. This means that in the event of a dispute between a HMRC officer and an individual about whether any recycling was pre-planned, the onus is not on the individual to prove the absence of intention. However, the HMRC officer will be entitled to take into account any evidence that points towards pre-planning."
In my case for example, it's pretty clear that I was not relying on the ability to claim a later lump sum, in order to fund the higher pension contributions. I can make a pretty strong case that I would have made those contributions anyway even if I wasn't going to take a PCLS - in fact as stated in my OP I am not even sure I am going to take one or the exact timing yet as it's flexible.2 -
Those quotes are pretty vague and I would not rely on them, rather I would rely on the examples in the manual, where making pension contributions and receiving a lump sum are given as evidence that recycling has occurred. Maybe I'm over-cautious but with the large amount at stake I would not want to be over-confident.
There does seem to be some flexibility though in the definition of "what might be expected": it's not simply the average of the last ten years contributions. "Other circumstances where contributions might fluctuate but are still paid on a set basis are where a member pays contributions each year equal to the amount of the member’s UK earnings that would ordinarily be over the threshold for higher rate tax." I guess you are doing this?
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Andreg said:Those quotes are pretty vague and I would not rely on them, rather I would rely on the examples in the manual, where making pension contributions and receiving a lump sum are given as evidence that recycling has occurred. Maybe I'm over-cautious but with the large amount at stake I would not want to be over-confident.
There does seem to be some flexibility though in the definition of "what might be expected": it's not simply the average of the last ten years contributions. "Other circumstances where contributions might fluctuate but are still paid on a set basis are where a member pays contributions each year equal to the amount of the member’s UK earnings that would ordinarily be over the threshold for higher rate tax." I guess you are doing this?
As I said in one of the prior posts, before about 2021 or so, I was blindly thinking that there was no way I could retire until I am early 60s at the earliest - it was only after an IFA said to me that I could set my ambitions higher based on my existing pots and my wife's large DB provision, that I started to investigate how to optimize and increase my contribution rates. It seems mad to people on these boards, but lots of people are totally clueless about all this stuff and that was me a couple of years back. I have since been educated a lot partly thanks to the amazing folks on these boards.
I also have a bonus scheme where I receive an annual bonus which is variable depending on company performance - this again is one of the HMRC examples but in my case it's a bit more complicated than just that the contributions follow the exact pattern of the bonuses.
Those HMRC examples each address one scenario, but in a real life situation it would probably be a combination of scenarios.0 -
NoMore said:
I've said before, I believe these rules are in place to stop firms advising people to do this, and making money from it, not to punish a individual. Its much easy to prove somebody was advised to do this, as that's preplanning covered right away. However I am not HMRC so cannot say how they will look at any individuals case.
And per FTAdviser: "In recent years we have seen courts and tax tribunals wrestle with a range of pension issues, including taxable property, lifetime allowance protection, contributions in-specie, inheritance tax and investment due diligence. To date, however, we are yet to see any cases involving lump sum recycling." I guess this indicates HMRC are not pursuing it at all aggressively.0 -
Andreg said:NoMore said:
I've said before, I believe these rules are in place to stop firms advising people to do this, and making money from it, not to punish a individual. Its much easy to prove somebody was advised to do this, as that's preplanning covered right away. However I am not HMRC so cannot say how they will look at any individuals case.
And per FTAdviser: "In recent years we have seen courts and tax tribunals wrestle with a range of pension issues, including taxable property, lifetime allowance protection, contributions in-specie, inheritance tax and investment due diligence. To date, however, we are yet to see any cases involving lump sum recycling." I guess this indicates HMRC are not pursuing it at all aggressively.
I am also not actually even sure if HMRC routinely has the details of regular salary sacrifice contributions made through payroll - there is no action for HMRC to take at that point so I'm not sure if they even collect that information today unless they need it for a specific individual.
However the worry is that I am not sure if there is any statute of limitations on that stuff, so they could come back 15 years later and start challenging what you did in the past, by which time you might not even remember why you did whatever it was.
Another point is that on the HMRC guidance about recycling, there is this:
"(This content has been withheld because of exemptions in the Freedom of Information Act 2000)(This content has been withheld because of exemptions in the Freedom of Information Act 2000)"
I've always wondered what is supposed to be here - I mean, why not just have nothing there - why highlight the fact that you have removed something from the page!
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You are not recycling if you have not drawn on a pension
It is not pension recycling....0 -
sgx2000 said:You are not recycling if you have not drawn on a pension
It is pension recycling....
"Alternatively, when an individual takes these steps:- decides to use a pension commencement lump sum as the means to significantly increase contributions to a registered pension scheme, and then
- pays the significantly increased contributions or otherwise arranges for them to be paid, and then
- receives the lump sum
So it seems that HMRC reserves the right to challenge such actions.
Whether they would really do that if the person was clearly retiring and taking their PCLS amounts, seems doubtful, but their guide book seems to leave this open as a possibility.1 -
I transfered 26K into my works pension last month.... and will probably start an annuity in the next month.....
So I guess i will find out in April
But the recycling rules are set up to stop people using the lump sum to buy a new pension and receive further tax relief..
So I very much doubt they would pull me up....
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sgx2000 said:I transfered 26K into my works pension last month.... and will probably start an annuity in the next month.....
So I guess i will find out in April
But the recycling rules are set up to stop people using the lump sum to buy a new pension and receive further tax relief..
So I very much doubt they would pull me up....
.1
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