Is this recycling within rules?

concernedpharmacist

63 y.o.male.
Currently in receipt of £25k DB pension.
Also have £200k flexible drawdown DC pension
Still working self-employed earning about £12.5k p.a.
In recent years have always contributed at least £10k p.a. to pension pot.

Was thinking of contributing a single payment of £8k to DC pension every February and then withdrawing £9.6k every March.

With tax relief my pot would increase by £10 k following the contribution (£400 after following month's withdrawal). 

The withdrawal would give £2.4k tax free and £5.76k (£7.2k -20%tax)  = £8.16k.

So in the couple of weeks between contribution and withdrawal I would have gained £160 cash and £400 in pension pot each year.

This seems like money for nothing. Is there anything within the rules to preclude me doing this every year as long as I continue earning?

My total taxable earnings would be £25k + £12.5k + £7.2k = £44.2k, so well within the 20% tax band.

My contribution of £8k should be within the MPAA and less than my  earnings.

My pension contribution would be less than I have contributed in the past.

Thanks in advance. 

Linton

It is outside the recycling rules purely because there is a £7500 minimum TFLS for the rules to apply.

See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

concernedpharmacist

So, can i confirm, that this would be a sensible thing to do year on year to make over £500 profit each year in my example??

Linton

I cannot see any reason why you should not do this. Dont forget the £400 left in your pension would be taxable when it was eventually withdrawn so it is only worth £320.

Is your scheme really worth the effort as opposed to simply keeping the £10Ks suitably invested in your DC pension when they would steadily compound over the years?  

concernedpharmacist

Yes thanks, so £160 plus £320 =:£480 profit.

I don't have £10 all year round to commit to long term investment,  but I might be able to scrape it together for this short term scheme at the end of the year..
If I did have some cash available at other times of year I could park it in an iSA with easy access options.