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Where Taxpayers and Advisers Meet

Does pension recycling rules apply if no tax relief?

rob252
Posts:2
Joined:Sat Oct 30, 2021 12:53 pm
Does pension recycling rules apply if no tax relief?

Postby rob252 » Sat Oct 30, 2021 1:02 pm

I have a DB pension that I will be claiming soon. I wish to take a PCLS sum of £20k. I have a separate SIPP and each tax year I contribute £3600,including tax relief,as I am not in employment.

I have already made a £3600 contribution to my SIPP for the current tax year. I now wish to pay in a further £10k to my SIPP. As I am not in employment no tax relief will be received by me in respect of the further payment.

HMRC states that the recycling rule is intended to prevent the generation of artificially high amounts of tax relief by using the PCLS to make a further,tax relieved, contribution to a registered pension scheme.

As I will not receive any tax relief on the £10k contribution to my SIPP does that mean that the contribution is not relevant when considering if pension recycling has taken place?

iwmtaxadvisor
Posts:34
Joined:Wed Sep 09, 2020 5:12 pm
Contact:

Re: Does pension recycling rules apply if no tax relief?

Postby iwmtaxadvisor » Sun Oct 31, 2021 1:32 pm

I seem to remember reading that the recycling rules apply from the date that applies within the tax year, not for the whole tax year in question. I don't have the relevant section to hand, but that's what I would look up. If it is as I remember, you could place your 2,600 and then your 10,000 and then take the PCLS within the same tax year but in that order, and not be bothered by the recycling rules.

Unlike the USA the UK does not have 'basis' (2020/21), so you will get a draw taxed as income on the way out even though it might be partially due to capital for which you have not had relief on the way in. I imagine you've thought of this.
Robert Noble-Warren, Chartered Tax Adviser and Asset Manager
High net worth families with a UK connection are welcome to book a 40 minute consultation

iwmtaxadvisor
Posts:34
Joined:Wed Sep 09, 2020 5:12 pm
Contact:

Re: Does pension recycling rules apply if no tax relief?

Postby iwmtaxadvisor » Sun Oct 31, 2021 1:34 pm

Sorry, post your 3,600, not 2,600 (typo)
Robert Noble-Warren, Chartered Tax Adviser and Asset Manager
High net worth families with a UK connection are welcome to book a 40 minute consultation

ben_power
Posts:67
Joined:Tue Feb 27, 2018 8:34 pm

Re: Does pension recycling rules apply if no tax relief?

Postby ben_power » Sun Oct 31, 2021 9:19 pm

Why would you want to make an additional contribution if you won't benefit from tax relief? Other than potential legacy planning it wouldn't really make sense. If you needed to draw it back out you'd only receive 25% tax free and you'd need to utilise drawdown if you didn't need the whole lot.

An ISA would allow easier access, less complexities (drawdown) and no tax on all 100%.

You could wait until the next tax year and benefit from tax relief again.

I'm not sure how the tax relief is applied, my understanding is that the provider claims basic rate relief at source meaning you could end up with a tax bill to pay back the tax relief you were never entitled to.

rob252
Posts:2
Joined:Sat Oct 30, 2021 12:53 pm

If not non-statutory clearance service then CAP 1?

Postby rob252 » Tue Nov 16, 2021 2:24 pm

I sent an email to the HMRC non- statutory clearance service. I was hoping to obtain clarification on my query regarding whether the pension recycling rules apply if
no actual tax relief is received on the pension contribution.

HMRC replied," Unfortunately, your query does not fall within the scope of the Non-Statutory Clearance regime at this stage.
The Non-Statutory Clearance Service was set up to provide clarity where a company has material uncertainty over the legislation regarding a specific transaction. "

From online research I see that there was a CAP 1 service set up some years ago which enabled non-business customers or customers with a query about non-business activities to get advice on HMRC's interpretation of recent tax legislation.

Is the CAP 1 service still in existance?
What is the procedure for submitting a non-business query for HMRC interpretation?
Can you submit query by email or do you need to send a letter?

Any thoughts/comments will be most appreciated.

robbob
Posts:3176
Joined:Wed Aug 06, 2008 4:01 pm

Re: Does pension recycling rules apply if no tax relief?

Postby robbob » Wed Nov 17, 2021 9:22 am

Same questiion as ben_power - why add to SIPP if you won't get the tax relief and later extraction will be 75% taxable.


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