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How to declare pension contrib to HMRC?
Comments
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Nope. Not if the reinvestment or increase in contributions was planned in advance (as is clearly the case here) before you took the lump sum. HMRC looks at contributions made in the tax year of the withdrawal, plus two tax years before and two tax years after (five tax years total)
Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!0 -
How can that make sense. Many fill there pensions prior to retirement. In fact it's often cited as a good thing to do on here. Recycling rules relate to withdrawal of the lump sum and a subsequent increase in contributions to the pension that it came from. That's why it's called recycling. Even then, most people will never fall foul of the rules.
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What is the cumulative basis on which the significant increase of contributions is based?
An individual planning to increase contributions significantly to a registered pension scheme when taking a pension commencement lump sum does not avoid the ‘significant increase’ test by increasing contributions piecemeal or gradually over time. It does so by providing for contributions to be measured over a set period of time in determining whether or not there has been a significant increase in contributions.
The period of time is:
the tax year in which an individual takes a pension commencement lump sum with the intention of using it to make significantly increased contributions to a registered pension scheme
the 2 tax years immediately preceding the tax year in which the individual took the lump sum
the 2 tax years immediately following the tax year in which the individual took the lump sum.
Its because of things like this:
The scope of the recycling rule includes any transaction entered into for the purposes of recycling. For example, the taking out of a loan to provide the wherewithal to pay a contribution into a registered pension scheme, where that loan is to be repaid with the pension commencement lump sum.
I'm not saying in this particular case recycling has occurred, that's not for me to decide and we don't have enough info anyway. Just showing the source of the rules that the timing of when things occur within 2 years either side of receiving a lump sum is irrelevant under HMRC rules.
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Recycling rules relate to withdrawal of the lump sum and a subsequent increase in contributions to the pension that it came from.
Not quite.
For subsequent read related
And it doesn't matter what pension you use either.
You say it doesn't make sense but you have to put yourself in the shoes of someone who is trying to write a law to stop something happening. What would be an easy way to evade the law if they limited it to subsequent contributions? Pay the contribution first and then replenish your assets by taking the tax free lump sum. So they don't limit the prohibition to subsequent contributions. And they don't limit it to contributions in the same tax year.
You are correct that lots of people increase their contributions in the lead up to retirement and lots (maybe all) of them don't get hauled up by HMRC for recycling. But that is not to say that they COULDN'T be. You'd need to work your way through the checklist to be sure.
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Recycling includes precycling …
Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD1 -
I would suggest that nobody, unless they have income like Elon Musk, will ever get into trouble with HMRC for filling their pension to the max before retirement.
Although it does give people another chance to get their knickers in a twist. 😂
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Knickers in a twist for taking notice of guidance published by HMRC themselves?
Whether HMRC could prosecute and prove a case or not I would say no-one would want the grief of a potential investigation hanging over them when they should be looking forwards and enjoying the start of their retirement.
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Nobody should put as much as they can into their pension in the years before they retire?
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That isn’t what I said at all is it?
The OP stated they wanted to make a large contribution immediately prior to retirement and taking their lump sump and I simply pointed out the potential of falling foul of the recycling rules. You stated that recycling could only happen after you start taking money from a pension which is absolutely wrong.
I myself invested heavily in my pension in the final months before retirement, but you need to be aware of the potential tax implications when you come to take money out.
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It is what you implied in response the specific post I made that you replied to.
Anyway life is too short to worry about things that might, but are unlikely to, happen.
I'm more likely to win the lottery (which I dont do) than an individual Is to be hauled up by HMRC for stuffing their pension and then later spending the lump sum in the"wrong" way.
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