Pension contributions can be used to relieve LC19

[Iliketax]

I cant see that this would apply in this example the TFC is not paying back into the pension it is being used to pay the tax bill.

Great. But if you google "pension lump sum recycling" and have a read of some of the stuff that comes up you change your mind.

[Delendog]

Great. But if you google "pension lump sum recycling" and have a read of some of the stuff that comes up you change your mind.

I did and didn't see any that were not quoting using your lump sum to pay back into a pension pot to get more tax relief. This idea is using the lump sum to pay a bill that just happens to be tax.

Can you be specific to where this is not allowed?

[Iliketax]

I did and didn't see any that were not quoting using your lump sum to pay back into a pension pot to get more tax relief. This idea is using the lump sum to pay a bill that just happens to be tax.

Can you be specific to where this is not allowed?

This is what I found with google:

https://www.gov.uk/hmrc-internal-man...33810#IDA40PQB

If a pension commencement lump sum is taken as part of a structured and pre-planned arrangement for paying significantly greater contributions to a registered pension scheme, the fact that the individual has other funds from which the significantly greater contributions are paid or could have been paid does not mean that the recycling rule is avoided.

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

If a decision is made to use the tax-free lump sum to significantly increase contributions, this is pre-planning. The 'relevant time' is when the tax-free lump sum is taken. Even if the contributions increase before the tax-free lump sum is taken this can be pre-planning. In this case the 'relevant time' is when the contributions are increased.

Adviser confirmation | Scottish Widows Extranet

It doesn’t matter whether the increased contributions are made before or after the TFC is paid. The key is the intention.

https://www.zurichintermediary.co.uk...073991C5D07D53

2. Takes these steps:
• decides to use a PCLS as the means to significantly increase contributions to a registered pension scheme, and then
• pays the significantly increased contributions or otherwise arranges for them to be paid, and then
• receives the lump sum.

https://www.pruadviser.co.uk/knowled...ls-recycling/#

The order of events after making the decision to use the PCLS to fund a pension contribution is not relevant.

[Loan Ranger]

Is this allowed?

Say I wanted to buy a car for £10k.
Instead of paying cash for it, I pay £32k net into a pension. The provider reclaims £8k from HMRC, giving a total of £40k.
I then withdraw the 25% tax free lump sum £10k and use this to buy the car.

In effect, the car has only cost me £2k.

[Delendog]

This is what I found with google:

https://www.gov.uk/hmrc-internal-man...33810#IDA40PQB



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



Adviser confirmation | Scottish Widows Extranet



https://www.zurichintermediary.co.uk...073991C5D07D53



https://www.pruadviser.co.uk/knowled...ls-recycling/#

Ok. But if you use personal savings to make a pension payment that includes any carried forward of unused allowance but is still within your salary limits for the year of contribution. Then in the following year (assuming at least 55) you then remove your 25% and use that to pay your tax bill - I can't see how the rules are broken?

[Iliketax]

Ok. But if you use personal savings to make a pension payment that includes any carried forward of unused allowance but is still within your salary limits for the year of contribution. Then in the following year (assuming at least 55) you then remove your 25% and use that to pay your tax bill - I can't see how the rules are broken?

It will be a question of fact whether these rules. Take your own advice on that as a surprise 55% tax charge on the lump sum may not be too much fun. It is clear that you are planning to do this. So that's one bit of the test. The question then is whether you are making a significantly greater contribution is made “because of” the PCLS. That's a question of fact.

[starstruck]

I am slightly confused by this too, the poster is suggesting making a big pension payment and shortly afterwards taking a lump sum which it happens he will end up having to give to HMRC rather than go on a luxury holiday. Are you not allowed to make big payments as retirement draws close?

I can see if he put the lump sum back into his pension that would clearly be recycling, but he is not saying that.
EDIT - unless he is planning on continuing pensions payments after the lump sum has been taken and the argument goes that he wouldn't have been able to afford those without the pre-planning bit. I can understand that.

Assuming this is not allowed, which I find odd, how long a gap safely avoids these recycling rules? If I pay a massive amount now but only in mid 40s with no plans to retire for 20 yrs I assume there is no issue. What if you make a big pension payment 1 year before retirement, 2 ys , 5 yrs etc..

[Loan Ranger]

Is this allowed?

Say I wanted to buy a car for £10k.
Instead of paying cash for it, I pay £32k net into a pension. The provider reclaims £8k from HMRC, giving a total of £40k.
I then withdraw the 25% tax free lump sum £10k and use this to buy the car.

In effect, the car has only cost me £2k.

That's why I cited the example of buying a car, rather than paying a tax bill.

[starstruck]

That's why I cited the example of buying a car, rather than paying a tax bill.

So I'm curious ... I've added some text in bold below

Say I wanted to buy a car for £10k IN TEN YEARS.
I pay £32k net into a pension NOW . The provider reclaims £8k from HMRC, giving a total of £40k.
I then withdraw the 25% tax free lump sum TEN YEARS LATER and use this to buy the car.
In effect, the car has only cost me £2k.

That would be ok right? So how long before the pension payment and the withdrawal is allowed?

[Iliketax]

So I'm curious ... I've added some text in bold below

Say I wanted to buy a car for £10k IN TEN YEARS.
I pay £32k net into a pension NOW . The provider reclaims £8k from HMRC, giving a total of £40k.
I then withdraw the 25% tax free lump sum TEN YEARS LATER and use this to buy the car.
In effect, the car has only cost me £2k.

That would be ok right? So how long before the pension payment and the withdrawal is allowed?

Why not just read HMRC's guidance on it that I posted earlier: https://www.gov.uk/hmrc-internal-man...nual/ptm133810

You'll get a lot clearer view there than by asking questions here.