Pension recycling rules hit?

BookieBee

Hi! Wondering if anyone has hit or is familiar with my scenario.

I checked the Inland Revenue website and their pension tax manual and even spoke to them, but didn't get a definitive answer.

My scenario is fairly straightforward in that I have a defined contribution pension pot of around 700k. For the past 7 years, through my employer and my contributions, I have maximised at the annual allowance of 40k. In the last financial year, the allowance rose to 60k (my salary is around 100k) and I raised my contributions to that and will do the same until 59 when I retire. However, I plan to buy a house (currently renting) this year and intended to withdraw a 15% tax free lump sum to put towards the mortgage. I'm currently 55 so intended to take advantage of the ability to withdraw a tax-free lump sum but not utilise all of the permitted 25%. My question is whether I would breach the pension recycling rules. I don't believe I would as my contribution behaviour shows I've maximised payments every year for at least 7 years to the annual allowance as part of retirement planning.

The Inland Revenue talks about 2 key areas (which I feel are a little ambiguous) where they state the following as conditions to avoid with regard to subsequent pension contributions, pertinent as I intend to continue to keep paying in to the maximum annual allowance until 59:

a) "the cumulative amount of the additional contributions exceeds 30% of the pension commencement lump sum."
>>I don't think applicable as my contributions have and always will be the annual allowance limit until 59

b) "because of the lump sum, the amount of contributions paid into a registered pension scheme in respect of the individual is significantly greater than it otherwise would be."
>>this is not applicable since my contributions in the last 7 years have been the annual allowance limit of 40k (60k from 2023-24).

In summary, I'm sure I'm not hitting any obvious recycling rule and the Inland Revenue chap I spoke to seemed to agree but would not commit to a definitive answer. I know some will say to just leave the pension growing, but I'm concerned at a market sell-off post the US/UK elections and would feel happier taking out around 15% as a lump sum so my query is more centred around clarifying the 2 rules for others' benefit, too.

Many thanks in advance, B.

Linton

You wont get a definitive answer on anything to do with Pension Recycling.  The HMRC web site gives some guidance but wont cover every situation.  In such circumstances tax details can often be clarified by the courts.  However as far as anyone on this website has reported, no-one has ever been accused of pension recycling by HMRC and so no case has ever come to the courts.

Pat38493

I can't see how you would be in breach of pension recycling in this situation.  Regardless of the tests around increase in contributions etc, the recycling has to be pre planned.  You can show a pattern that you have maxed out your allowance for years in a row and you had no way of knowing that the allowance would increase to £60K in advance (unless you are Jeremy Hunt )   You can also show that the money you are taking out is used specifically towards a house and presumably there will be a paper trail showing this.

I can't see any way that HMRC could be interested in this, and also as Linton pointed out, it seems like HMRC only really uses these rules currently to deter against commercial large scale recycling schemes by adviser firms and not against individual DIY investors.  Even if they did start going after individuals, I suspect they would be looking for low hanging fruit and your situation is clearly not recycling as far as I can tell from the information provided.

BookieBee

Thanks to you both. Good point about the pattern of behaviour and paper trail. Thanks again!