How is it ever *not* recycling??
allanm01
Posts: 12 Forumite
One is allowed to take a PCLS without triggering a reduction in MPAA from £40,000. So say one took £25,000 as a PCLS, and paid, as one is perfectly entitled to do, £40,000 into the pension, over the course of the same year. If you can't do the latter, the MPAA that you've preserved by not drawing down the residue is meaningless.
But other than intent, I don't see how any payments involving those sums would avoid being labelled 'Recycling', if there is no history of large payments. The regs talk about 'normal retirement planning', but as one retires just once, it's not clear what is normal in that regard.
But other than intent, I don't see how any payments involving those sums would avoid being labelled 'Recycling', if there is no history of large payments. The regs talk about 'normal retirement planning', but as one retires just once, it's not clear what is normal in that regard.
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Thanks, I'd read the regs and scenarios, but was no wiser. I have some money I'd like to put into a pension, but I've taken a PCLS this year. It was not my intention to put the cash into the SIPP when I drew it, but I don't see, beyond that lack of intent, how one could escape the accusation of recycling. The route to having this surplus cash is more convoluted than simply having the PCLS fall into my possession, but the net result is the same.0
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The MPAA is only £4000. Most people earning £40k+ probably put in more than £4k into a pension (inc employer conts) so it's definitely worth avoiding triggering the MPAA just so you can carry on contributing as before.One is allowed to take a PCLS without triggering a reduction in MPAA from £40,000. So say one took £25,000 as a PCLS, and paid, as one is perfectly entitled to do, £40,000 into the pension, over the course of the same year. If you can't do the latter, the MPAA that you've preserved by not drawing down the residue is meaningless.
Recycling is only meant to catch those who get a PCLS and then increase their pension contributions as a result.0 -
The description I give here aims to explain things you can do.I don't see how any payments involving those sums would avoid being labelled 'Recycling', if there is no history of large payments.
Having a spouse with a good income can be helpful. If not that, up to three years of waiting gets you past the end of the measurement period and you can still make cumulative increases of 30% of the lump sum while waiting.0 -
The MPAA is only £4000.
Sorry yes, clumsy use of terms. 40,000 isn't the MPAA, it's an annual limit on money purchase ... !Recycling is only meant to catch those who get a PCLS and then increase their pension contributions as a result.
Yes, it just seems a bit of a grey area when the PCLS occurs in the same year one contributes large sums, and there isn't a long history. In my case, I returned to freelancing last year, and make significantly elevated contributions from fees, but I haven't built up a history of such contributions - they are the 'new normal'. So even if I don't put surplus personal cash in (unanticipated when I took the PCLS), I fall foul of the 'history' rule on contributions I control.0 -
That return to freelancing may be a suitable reason for the contributions to be increased regardless of the lump sum, resetting the base higher as in examples 5 and 1.0
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That return to freelancing may be a suitable reason for the contributions to be increased regardless of the lump sum, resetting the base higher as in examples 5 and 1.
Thanks yes, I do feel on slightly firmer ground with contributions from freelance income - although I have seen mention by HMRC that these could be seen as effective recycling, since I control the payments. But I'm also entitled to distribute income in a tax efficient manner. It's a familiar game they play: companies are separate entities except when they aren't.
I was part time when permie, and younger. I now receive an elevated rate 5 days a week, so there is a lot more dosh available, and given I just passed 60, I think there are plenty of grounds for a hike in contributions.
For the personal money, since I pretty much admit I can't see a way it wouldn't be recycling, I'm on less defensible ground.
[eta - although rereading the examples you pointed to, even that personal contribution could be defensible, since the PCLS came from former employment, and my new 'scheme' (a SIPP!) is inevitably on a different basis.].0 -
And while you could be the first, it's worth reading the bits I mentioned about HMRC in practice not doing this for individual taxpayers. Your changed circumstances seem to provide ample unconnected reasons for the increase to be expected. And the rules have done their intended job of preventing organised schemes from being marketed.
Remember that the £40k plus available carry-forward applies to all contributions to schemes for you, whether paid for by the company or personal money.0 -
Recycling a pension commencement lump sum (PCLS) into a pension to gain additional tax relief is not permitted under HMRC rules. From 6 April 2015 this remains the case; however, the monetary amount that will be used in determining whether recycling has occurred has been reduced from 1% of the lifetime allowance to £7,500.
This means that HMRC will consider recycling of a PCLS to have occurred when all of the following conditions have been met:- The member has received a PCLS.
- As a result of this PCLS, the contribution paid to a registered pension scheme in respect of the member is significantly greater than it otherwise would be (usually considered to be an increase in the expected contributions of more than 30%).
- The additional contributions are made by the member or someone else (i.e. an employer).
- The recycling was pre-planned.
- The amount of the PCLS, plus any other lump sums taken in the previous twelve months, exceeds £7,500.
- The cumulative amount of the additional contributions exceeds 30% of the PCLS.
I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
But worth noting that under those HMRC rules recycling is fine, provided you stay within the specified limits. Using a spouse or increasing contribution more than two tax years before or after the year you take the lump sum are a couple of the ways that can facilitate the larger amounts of recycling.
For many people, sadly, the £7,500 limit is easy to stay within because their pots aren't worth four times that anyway.0
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