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Lgps lump sum recycling

I’ll be very shortly in receipt of my automatic lump sum from pre 2008 service I’ve no need or want for it ( makes sense taking pension now as I qualify for R85 )I’m thinking of placing it in my sipp to attract tax relief as I’ll have sufficient earnings this tax year to cover the gross contribution,in doing so will I fall foul of pension recycling rules ?

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  • Marcon
    Marcon Posts: 14,575 Forumite
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    edited 20 May at 9:32AM
    Sharktail said:
    I’ll be very shortly in receipt of my automatic lump sum from pre 2008 service I’ve no need or want for it ( makes sense taking pension now as I qualify for R85 )I’m thinking of placing it in my sipp to attract tax relief as I’ll have sufficient earnings this tax year to cover the gross contribution,in doing so will I fall foul of pension recycling rules ?

    Given your objective, quite possibly yes.  How much is the lump sum?

    The other considerations: do you have sufficient earned (not pension) income to cover the payment of such a lump sum? You'd need to be earning at least enough in the tax year to cover the gross payment to your SIPP (ie including the tax relief the provider will add to your SIPP pot).

    Given that you are doing this to get tax relief, you also need to ensure any other pension payments, including employer contributions, won't take you over the annual allowance (£60K), unless you have scope to use carry forward? See https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward 
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • Sharktail
    Sharktail Posts: 51 Forumite
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    edited 20 May at 10:16AM
    Lump sum is £18k , fully  intended to max out sipp contributions up to a my gross earnings  of 50k including employer contributions this year as I intend to retire March 26
  • Baldytyke88
    Baldytyke88 Posts: 533 Forumite
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    Sharktail said:
    Lump sum is £18k , fully  intended to max out sipp contributions up to a my gross earnings  of 50k including employer contributions this year as I intend to retire March 26

    Will HMRC be bothered about £18k, how much were your pension contributions when you were working?
  • Sharktail
    Sharktail Posts: 51 Forumite
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    Last few years I’ve added up to my gross earnings 
    to max out sipp inc employer contributions ,fully intending to do the same this year , so surely even if I don’t add the tax free lump I can still add upto earnings this year ?so either way it’s the same result or am I falling foul of the rules ? No idea 
  • Sarahspangles
    Sarahspangles Posts: 3,239 Forumite
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    edited 20 May at 12:50PM
    I don’t think this would be assessed as an unauthorised payment, so long as your pattern of contributions is consistent over a few years and there isn’t a significant increase in the year in which you get your PCLS.

    You can see some (but not all) of the HMRC guidance online. This page outlines that an increase of up to 5% wouldn’t be material. https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133860

    The reality is that nobody can know for sure how HMRC actually handle scenarios like this, because there are no published cases and nobody is reporting online that they were investigated.
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  • Sharktail
    Sharktail Posts: 51 Forumite
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    Think I’ll go to plan B stick the exact amount of lump sum in an ISA  & just add my salary to my sipp every month 
  • bonnyrigger
    bonnyrigger Posts: 103 Forumite
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    Sorry to chip in, slight variation on the original question. If I give my OH 15k from my TFLS to put in her SIPP (that being the remainder of her gross earnings less her own contributions for the year) does that fall foul of the rules?
    :beer::beer::beer:
  • Baldytyke88
    Baldytyke88 Posts: 533 Forumite
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    Sorry to chip in, slight variation on the original question. If I give my OH 15k from my TFLS to put in her SIPP (that being the remainder of her gross earnings less her own contributions for the year) does that fall foul of the rules?

    I cannot see a problem if she is contributing up to her earnings limit.
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