Recycling the pension commencement lump sum
Some people use the PCLS to contribute back into the pension to get further tax relief.
The Government sees recycling of the PCLS as abuse of the tax simplification rules. HMRC will therefore treat the entire PCLS as an unauthorised payment where all of the following conditions are met.
- The individual receives a PCLS which, when added to any other PCLS drawn in the previous twelve-month period, exceeds £7,500.
- The PCLS means that the pension contribution paid on behalf of the individual is significantly greater than it would otherwise be:
- a ‘significant increase’ is taken to be ‘more than 30% of the contributions that might otherwise have been expected’ and the cumulative sum of extra contributions exceeds 30% of the
- The additional contributions are made by the individual or by someone else, such as an employer.
- The recycling was pre-planned.
Question - Use Your Note Taker To Jot Down Ideas / Calculations
In which of the following scenarios would HM Revenue and Customs consider that recycling of a pension commencement lump sum (PCLS) has taken place?
Select one:
a) Teresa, who has not made any contributions for several years, receives a PCLS of £30,000 and shortly afterwards decides to recycle £10,000 into a personal pension.
b) Kevin, who has not made any contributions for several years, receives a PCLS of £5,000 and shortly afterwards decides to recycle £2,000 into a personal pension plan.
c) Miranda, who makes pension contributions of £100 per month, receives a PCLS of £50,000 and shortly afterwards decides to recycle £10,000 into a personal pension plan.
d) Ernest, who makes pension contributions of £1,000 per month, receives a PCLS of £25,000 and shortly afterwards decides to recycle £5,000 into his personal pension plan.
A)
Teresa, who has not made any contributions for several years, receives a PCLS of £30,000 and shortly afterwards decides to recycle £10,000 into a personal pension.