HMRC recycling & tax efficiency

Newstart26

Well as the username suggests I’m starting a new chapter and coming to terms with the HMRC minefield whilst trying to be tax efficient.

As a background I’m 42 and left the forces after 22 years with the majority on the 75 pension scheme. I’ve taken maximum commutation to reduce the tax burden so I’m receiving a £65k tax free lump sum and £12k a year until age 55 when the commutation cancels out and also the accumulated CPI increases kick in. 

For the last few years I’ve being paying £12k NET into a SIPP. the mortgage is very low and I’ll pay off the remaining balance (around £8k) which will be 12 months of payments with the lump sum when the fixed term ends in April 26. I’ve just started a new job circa £70k so with the EDP that creates a taxable income of £82k. It has a DB pension but also the ability to salary sacrifice through AVCs. I’m looking at the moment to contribute the maximum through AVCs whilst preserving the majority of the lump sum by depositing into S&S ISA/LISA over this FY & the next & cash savings. I don’t intend to make any sudden unprecedented large deposits into my long established SIPP. 

I appreciate this is a nice problem to have but don’t want to fall foul of the system, how much could I salary sacrifice into a new pension without triggering an investigation? Is there any other considerations I need to be aware of?

SVaz

Congratulations.
I’m 60 today and start getting my AFPS 75 pension hopefully very soon. 

As far as I’m aware,  having your forces pension and lump sum doesn’t count towards pension recycling.   You have absolutely no choice in receiving either so it isn’t a concious effort to recycle.
My own RAF pension will be going straight into my Sipp,  the lump sum into an ISA to pay the mortgage off next year when the fix ends. 

ClashCityRocker1

The most important limitation is the Annual Allowance (currently £60K or your earnings whichever is less) which is the limit to the amount you will get tax relief on for the year - although you can use unused amounts from previous 3 years. 

The £60K includes all contributions to DC pensions (including employers') and the calculated growth for the year in DB pensions (bit trickier to work out).

Newstart26

SVaz said:

Congratulations.
I’m 60 today and start getting my AFPS 75 pension hopefully very soon. 

As far as I’m aware,  having your forces pension and lump sum doesn’t count towards pension recycling.   You have absolutely no choice in receiving either so it isn’t a concious effort to recycle.
My own RAF pension will be going straight into my Sipp,  the lump sum into an ISA to pay the mortgage off next year when the fix ends. 

Thanks & congratulations on the big birthday.

My understanding of the pension is the annual monthly payments are declared & treated as earned income with income tax due but not NI. However, as the lump sum is tax free that part can fall foul of the pension recycling rules.

ClashCityRocker1

Details:

Tax on your private pension contributions: Annual allowance - GOV.UK