Pension recycling - complicated?

[Deleted User]

Took £55K tax free about 10 months ago.

As we get to the end of this financial year it might be better for me to pay more into my pension (rather than have it all go on tax).

I'm a bit worried about pension recycling though.

If I increase the contributions, over 3 years the extra is likely to be more than 30% of the £55K tax free. (i.e. 30% is £16500, so more than £5500 a year extra).

Last I contributed a fair chunk but the year before not so, so my contributions on average haven't been that great. If I increase it now the likely increase over the average is going be more than 30%.

On the plus side, I took the £55K and paid off credit cards, loans, some of my mortgage so I never planned to use to pay more into my pension.

BUT obviously with less loans/credit cards to pay off I can now afford to pay more into my pension.

Main driver is not put more into my pension because I'm getting older and it seems a waste paying so much tax on it. (Im an IT contractor so have to pay employers NI, then the normal PAYE that everyone does as well - unless it goes into a pension so it saves 50% pretty much).

Just concerned I'm going to get caught or am I ok because none of this was pre-planned?

Marcon

[Deleted User] said:

Took £55K tax free about 10 months ago.

As we get to the end of this financial year it might be better for me to pay more into my pension (rather than have it all go on tax).

I'm a bit worried about pension recycling though.

If I increase the contributions, over 3 years the extra is likely to be more than 30% of the £55K tax free. (i.e. 30% is £16500, so more than £5500 a year extra).

Last I contributed a fair chunk but the year before not so, so my contributions on average haven't been that great. If I increase it now the likely increase over the average is going be more than 30%.

On the plus side, I took the £55K and paid off credit cards, loans, some of my mortgage so I never planned to use to pay more into my pension.

BUT obviously with less loans/credit cards to pay off I can now afford to pay more into my pension.

Main driver is not put more into my pension because I'm getting older and it seems a waste paying so much tax on it. (Im an IT contractor so have to pay employers NI, then the normal PAYE that everyone does as well - unless it goes into a pension so it saves 50% pretty much).

Just concerned I'm going to get caught or am I ok because none of this was pre-planned?

You won't get a definitive answer on this from anyone (here or otherwise), because nobody knows how HMRC approach recycling. No figures are available - FOI requests are denied on the basis they are disproportionately expensive, because there are no central statistics: 'Each case has to be examined individually to give a reply'.

It is for HMRC to prove the recycling was preplanned, not for you to disprove it, which might help.

Pat38493

[Deleted User] said:

Took £55K tax free about 10 months ago.

As we get to the end of this financial year it might be better for me to pay more into my pension (rather than have it all go on tax).

I'm a bit worried about pension recycling though.

If I increase the contributions, over 3 years the extra is likely to be more than 30% of the £55K tax free. (i.e. 30% is £16500, so more than £5500 a year extra).

Last I contributed a fair chunk but the year before not so, so my contributions on average haven't been that great. If I increase it now the likely increase over the average is going be more than 30%.

On the plus side, I took the £55K and paid off credit cards, loans, some of my mortgage so I never planned to use to pay more into my pension.

BUT obviously with less loans/credit cards to pay off I can now afford to pay more into my pension.

Main driver is not put more into my pension because I'm getting older and it seems a waste paying so much tax on it. (Im an IT contractor so have to pay employers NI, then the normal PAYE that everyone does as well - unless it goes into a pension so it saves 50% pretty much).

Just concerned I'm going to get caught or am I ok because none of this was pre-planned?

Various other posters here have stated that HMRC doesn't pursue individuals about this topic and the rules are designed to prevent industrial scale marketed recycling schemes.

Based on what you are describing, I would be flabergasted if HMRC pursues you on this - especially if as you say you are going to increase the monthly contributions to a sustainable level based on your current income rather than paying in a large lump sum.  

There is another thread running at the moment where the person is going to cycle all their savings back into their pension in the year before retirement and then take a tax free sum, and the consensus seems to be that this won't be an issue either.

Also - if I understand your OP correctly, you only thought of doing this after you took the original TFC - therefore it's not pre-planned under the definition in the guidelines.

Marcon

Pat38493 said:

[Deleted User] said:

Took £55K tax free about 10 months ago.

As we get to the end of this financial year it might be better for me to pay more into my pension (rather than have it all go on tax).

I'm a bit worried about pension recycling though.

If I increase the contributions, over 3 years the extra is likely to be more than 30% of the £55K tax free. (i.e. 30% is £16500, so more than £5500 a year extra).

Last I contributed a fair chunk but the year before not so, so my contributions on average haven't been that great. If I increase it now the likely increase over the average is going be more than 30%.

On the plus side, I took the £55K and paid off credit cards, loans, some of my mortgage so I never planned to use to pay more into my pension.

BUT obviously with less loans/credit cards to pay off I can now afford to pay more into my pension.

Main driver is not put more into my pension because I'm getting older and it seems a waste paying so much tax on it. (Im an IT contractor so have to pay employers NI, then the normal PAYE that everyone does as well - unless it goes into a pension so it saves 50% pretty much).

Just concerned I'm going to get caught or am I ok because none of this was pre-planned?

Various other posters here have stated that HMRC doesn't pursue individuals about this topic and the rules are designed to prevent industrial scale marketed recycling schemes.

They can 'state' what they like, but it doesn't mean they're right! The view of the masses isn't actually a guarantee.

[Deleted User]

Pat38493 said:

[Deleted User] said:

Took £55K tax free about 10 months ago.

As we get to the end of this financial year it might be better for me to pay more into my pension (rather than have it all go on tax).

I'm a bit worried about pension recycling though.

If I increase the contributions, over 3 years the extra is likely to be more than 30% of the £55K tax free. (i.e. 30% is £16500, so more than £5500 a year extra).

Last I contributed a fair chunk but the year before not so, so my contributions on average haven't been that great. If I increase it now the likely increase over the average is going be more than 30%.

On the plus side, I took the £55K and paid off credit cards, loans, some of my mortgage so I never planned to use to pay more into my pension.

BUT obviously with less loans/credit cards to pay off I can now afford to pay more into my pension.

Main driver is not put more into my pension because I'm getting older and it seems a waste paying so much tax on it. (Im an IT contractor so have to pay employers NI, then the normal PAYE that everyone does as well - unless it goes into a pension so it saves 50% pretty much).

Just concerned I'm going to get caught or am I ok because none of this was pre-planned?

Various other posters here have stated that HMRC doesn't pursue individuals about this topic and the rules are designed to prevent industrial scale marketed recycling schemes.

Based on what you are describing, I would be flabergasted if HMRC pursues you on this - especially if as you say you are going to increase the monthly contributions to a sustainable level based on your current income rather than paying in a large lump sum.  

There is another thread running at the moment where the person is going to cycle all their savings back into their pension in the year before retirement and then take a tax free sum, and the consensus seems to be that this won't be an issue either.

Also - if I understand your OP correctly, you only thought of doing this after you took the original TFC - therefore it's not pre-planned under the definition in the guidelines.

Yes because my income for the year will exceed a threshold and its a case of bung in pension or pay 60% tax on it.
Wasn't aware at the time  - my salary is not fixed - depends on how many days I work (i.e. take off hols and sick days)

[Deleted User]

Wondering it its easier to just pay in a lump sum personally? You can do that can't you? Then its a tax write off on tax return....

At the moment, any contribs I make save on employers NI, employee NI, and tax. (Its complicated I'm sort of self employed, get paid gross per day, still goes through PAYE but I need to pay my own employers NI first) with any pension contribs?

If I did lump sum I'd only save on tax - is that right? (As before it would be 60% though approx)

Pat38493

[Deleted User] said:

Pat38493 said:

[Deleted User] said:

Took £55K tax free about 10 months ago.

As we get to the end of this financial year it might be better for me to pay more into my pension (rather than have it all go on tax).

I'm a bit worried about pension recycling though.

If I increase the contributions, over 3 years the extra is likely to be more than 30% of the £55K tax free. (i.e. 30% is £16500, so more than £5500 a year extra).

Last I contributed a fair chunk but the year before not so, so my contributions on average haven't been that great. If I increase it now the likely increase over the average is going be more than 30%.

On the plus side, I took the £55K and paid off credit cards, loans, some of my mortgage so I never planned to use to pay more into my pension.

BUT obviously with less loans/credit cards to pay off I can now afford to pay more into my pension.

Main driver is not put more into my pension because I'm getting older and it seems a waste paying so much tax on it. (Im an IT contractor so have to pay employers NI, then the normal PAYE that everyone does as well - unless it goes into a pension so it saves 50% pretty much).

Just concerned I'm going to get caught or am I ok because none of this was pre-planned?

Various other posters here have stated that HMRC doesn't pursue individuals about this topic and the rules are designed to prevent industrial scale marketed recycling schemes.

Based on what you are describing, I would be flabergasted if HMRC pursues you on this - especially if as you say you are going to increase the monthly contributions to a sustainable level based on your current income rather than paying in a large lump sum.  

There is another thread running at the moment where the person is going to cycle all their savings back into their pension in the year before retirement and then take a tax free sum, and the consensus seems to be that this won't be an issue either.

Also - if I understand your OP correctly, you only thought of doing this after you took the original TFC - therefore it's not pre-planned under the definition in the guidelines.

Yes because my income for the year will exceed a threshold and its a case of bung in pension or pay 60% tax on it.
Wasn't aware at the time  - my salary is not fixed - depends on how many days I work (i.e. take off hols and sick days)

Should be fine - I would certainly do it and avoiding 60% tax is a valid enough reason on its own.  Also as said, since you have already taken the TFC, the pre-planning point was when you took the TFC.  Since you didn't even know about this issue at the time you are in the clear.

I guess as Marcon said, theoretically HMRC could come and say they don't believe you and they think you are not telling the truth that you didn't pre-plan it from the start, but lots of people do this and nobody has come posting here saying that HMRC chased them, plus I haven't seen any articles in the Daily Mail or suchlike about poor pensioners being ripped off by HMRC when they didn't even know they were doing anything wrong, which I suspect is what would happen pretty quickly if they started agressively interpreting their own guidelines.