Pension 25% Cash Free Lump Sum .... Last chance saloon?

[WTFH]

Can you withdraw the 25% and put it back in immediately and have the tax deductions for paying into a private pension again?

Should be taxed for taking out and then taxed for putting it back in.

[malvolio]

Can you withdraw the 25% and put it back in immediately and have the tax deductions for paying into a private pension again?

You can, but you won't get the 25% tax allowance back again, because the deduction has already been declared. Everything now in the pot will be taxed at your marginal rate when you take it out, so you have effectively given away the 25% tax saving.

That's today, of course. What it will be next month is anyone's guess.

[escapeUK]

Can you withdraw the 25% and put it back in immediately and have the tax deductions for paying into a private pension again?

I think the answer is actually yes with conditions

https://rtsfinancialplanning.co.uk/y...ng-a-lump-sum/

Look at the tax free cash recycling section. You might have to spread this over a few tax years.

Useful flow chart:

https://adviser.royallondon.com/tech...tax-free-cash/

[sadkingbilly]

I think the answer is actually yes with conditions

https://rtsfinancialplanning.co.uk/y...ng-a-lump-sum/

Look at the tax free cash recycling section. You might have to spread this over a few tax years.

Useful flow chart:

https://adviser.royallondon.com/tech...tax-free-cash/

yeh, that the 25% is less than 2880.

[escapeUK]

This is quite interesting

https://www.gov.uk/hmrc-internal-man...ct%20of%20that


Obviously whoever does this had no preplan!!

"Instead, the onus is on HMRC to show that pre-planning took place"

Seems like the corrupt politicians put themselves a nice get-out clause in the rules.

I suspect if you withdrew in this tax year, and deposited in next tax year. You'd be fine. But that is not financial advice.

[willendure]

After reading countless articles about the Pension 25% Lump Sum being greatly reduced as part of the October Budget I must admit I have bottled it and applied for mine (via drawdown). The last straw was seeing that 2 Think Tanks are recommending that it be reduced to 100K Max. It's one of those things that once reduced will likely take ages to get restored to 25% (with max £250 ish K.) ... even when Labour get booted out of office at the next election.

Do any tax rises ever "get restored"?

They raised VAT to 20% as an emergency measure due to the credit crunch.

[pjt]

Do any tax rises ever "get restored"?

They raised VAT to 20% as an emergency measure due to the credit crunch.

Nope. Both sides will complain about a rise if they are in opposition but when they get in they very rairly reverse or reduce. Just look at Divi tax as an example the direction is always increases.

[escapeUK]

Interesting comment I just read in the Telegraph:

"If the reason that savers are pulling the tax free lump sum out of their pension fund is to avoid rumored tax changes, then this circumvents the “recycling” tests and gives them free reign to recycle the tax free lump sum through their pension

One of the conditions for the recycling rule to apply is that the recycling must be pre-planned - the individual must have intended from the outset to take a pension commencement lump sum to enable significantly greater contributions to be paid into a registered pension scheme by or in respect of that individual."

[mogga71]

Interesting comment I just read in the Telegraph:

"If the reason that savers are pulling the tax free lump sum out of their pension fund is to avoid rumored tax changes, then this circumvents the “recycling” tests and gives them free reign to recycle the tax free lump sum through their pension

One of the conditions for the recycling rule to apply is that the recycling must be pre-planned - the individual must have intended from the outset to take a pension commencement lump sum to enable significantly greater contributions to be paid into a registered pension scheme by or in respect of that individual."

TBH I haven't got the first idea what that actually means. Once you take your 25% lump sum out and thus commit to drawdown ... that's it. You can't get another 25% out even if you paid that money straight back into your pension. You can leave the rest of the money in your SIPP and even add it to it ... but no way you can get another 25% tax free lump sum out. That's my understanding anyway. If your investments go up then you can say goodbye to 'what might have been' .... eg. I am lucky enough to presently get £205k out tax fee .... but if I hadn't committed to drawdown and my portfolio went up another £230K for example by end of year ... I could have got the full 250K (ish) lump sum out then (if government allows it).

Up to now, of course the risk has always been that the market and your portfolio can go down ... thus reducing the 25% lump sum ... but now there is the added risk that the government reduce the 25% lump sum .... which looks increasingly likely. TBH at this stage I am just glad I am over 55 and have got a decent sum there. I feel sorry for the people who won't be able to get the 25% sum in the future. This budget is going to be a disaster for contractors ... especially those caught Outside.

[Protagoras]

TBH I haven't got the first idea what that actually means. Once you take your 25% lump sum out and thus commit to drawdown ... that's it. You can't get another 25% out even if you paid that money straight back into your pension. You can leave the rest of the money in your SIPP and even add it to it ... but no way you can get another 25% tax free lump sum out. That's my understanding anyway. If your investments go up then you can say goodbye to 'what might have been' .... eg. I am lucky enough to presently get £205k out tax fee .... but if I hadn't committed to drawdown and my portfolio went up another £230K for example by end of year ... I could have got the full 250K (ish) lump sum out then (if government allows it).

Up to now, of course the risk has always been that the market and your portfolio can go down ... thus reducing the 25% lump sum ... but now there is the added risk that the government reduce the 25% lump sum .... which looks increasingly likely. TBH at this stage I am just glad I am over 55 and have got a decent sum there. I feel sorry for the people who won't be able to get the 25% sum in the future. This budget is going to be a disaster for contractors ... especially those caught Outside.

Many people will have multiple pension pots, from various employments.
Subject to the maximum allowed (based on the old lifetime allowance) one can currently take 25% per pot tax free.

My understanding is that one can put a SIPP into drawdown, taking 25% tax free, not touching the 75% remaining (which is left to grow), and continue to contribute to another pension pot from which 25% tax free can be taken at a later date. This is in the same way as one can put a proportion of a SIPP into drawdown - it's not necessary to put all in to drawdown at once. Key is not to trigger the reduction in MPAA.

Of course, increasing the amount paid in, after taking the 25% exposes one to questions of re-cycling and a potentially stressful debate that most would seek to avoid.

I think the killer for contractors and umbrella workers alike would be payment of employer's NI on pension contributions. Hopefully the public sector impact of this is so great that they'll avoid this one and just put through a small increase in ER NI.