Pension Recycling Rules | HMRC Tax-Free Cash Recycling Rules (PCLS Recycling Rules)

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Pension Recycling Rules | HMRC Tax-Free Cash Recycling Rules (PCLS Recycling Rules)

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Pension Recycling Rules | HMRC Tax-Free Cash Recycling Rules (PCLS Recycling Rules)
Welcome To Our Channel Cameron James Pension Transfer
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The 25% tax-free PCLS is one of the benefits that the UK government provide inside every UK pension schemes. The Pension Commencement Lump Sum (PCLS) is a lump sum that is paid to you when you start taking benefits out from your scheme. The term PCLS recycling is a complicated area. In short, you use your PCLS to top up your other personal pension schemes such as SIPPs or DCs in order to get more tax relief from the government.
Is it can be done? How does the government's rules on this? Should you do PCLS recycling? Dominic James Murray, our CEO and Independent Financial Advisor answers all the questions and everything you need to know about the PCLS recycling as well as its rules.
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HMRC Tax-Free Cash Recycling Rules (PCLS Recycling Rules)
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Key Points In This Video:
✅ Definition of PCLS
✅ Withdrawing Your 25% Tax-Free PCLS
✅ PCLS Recycling
✅ PCLS Recycling Rules
✅ Planning Your PCLS
✅ The Best Thing To Do With Your PCLS
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Video Timestamp:
00:00 - Intro
00:21 - What Is a PCLS?
00:34 - PCLS in Final Salary Pension Scheme
01:18 - What Does PCLS Recycling Means?
02:35 - Is It Good To Do PCLS Recycling?
02:51 - PCLS Recycling Rules
03:30 - How Should You Do With Your PCLS?
04:43 - The Importance of Having a Plan for Your PCLS
06:02 - Outro
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Пікірлер: 32

@kevinpalmer3340 23 күн бұрын

I took a fixed term 10 year annuity. Does this now mean I can not pay anymore than £10,000 into my pension and get tax relief.

@cameronjamespensiontransfer 20 күн бұрын

Hello Thank you for your comment. Annuitising a pension does not trigger the £10k MPAA, so no, you would still be able to use your full allowance should you annuitise a pension.

@stevanharrison 7 ай бұрын

Spend it, enjoy it while you can

@cameronjamespensiontransfer 6 ай бұрын

That is certainly one way of enjoying retirement! Assuming you have already taken your PCLS? Were there any major reasons for this?

@papi8659 Жыл бұрын

Does this only apply to defined contrubution schemes? i have a final salary/defined benefit pension - can i put that money into my second pension (defined contribution) scheme?

@cameronjamespensiontransfer Жыл бұрын

Thanks for your message! Apologies this one must’ve slipped through. From our understanding pension recycling, is across the board, but always best to check with a qualified tax adviser before taking any decisions!

@guyr7351 2 жыл бұрын

Another good quick video, a couple of questions 1) recycling into an ISA, normally any gains are tax free, did you say on your death it goes into your estate and as such would be liable to inheritance tax ( if applicable) or is it just taxable? 2) recycling you tax free sum, putting it into an ISA, it is £20K per tax year correct? as my birthday is February does that mean I could invest £20K before 6th April then another £20K after the 6th?

@mwscuba 2 жыл бұрын

The answer to question 1 is a think( no expert ) it’s becomes part of your estate so guess if your under Inheritance tax limits then it’s not taxed. And question 2 is yea I have done that. Tho I did it a few weeks before the end of the tax year to make sure it went in and I did some at the end of April in the same year.

@guyr7351 2 жыл бұрын

@@mwscuba thanks I’m coming into some money soon and SIPP will be maxed out for the year and looking an ISA

@cameronjamespensiontransfer 2 жыл бұрын

Exactly. An ISA forms parts of your estate on death. So not as tax efficient for passing on assets as a UK pension. Correct. The tax year runs 5th April so always best to top before and then can top up again after that date. How this answers your questions! Anything else I can help with?

@guyr7351 2 жыл бұрын

@@cameronjamespensiontransfer hi James, Thanks for the reply luckily at present I don’t think I will hit inheritance tax limits, as I understand it £325K then plus £175 K for first/main property allowance giving £500K excluding pension funds that don’t count

@cameronjamespensiontransfer 2 жыл бұрын

OK that’s good then. ISA works very well then!

@stephenkelly3431 Жыл бұрын

Hello, anyone help. When hmrc consider if you have significantly increased pension contributions, is the assessment against the total of all contributions ( employer +personal) over all pensions(DC and dB) for each of the 5 years (2 before, the tax year possible pcls invested and 2 years after)?

@cameronjamespensiontransfer Жыл бұрын

Hello Stephen, as you have highlighted, "significantly increased pension contributions" is not exactly a cast iron statement or guidelines from HMRC. Potentially these have been left slightly open-ended to allow HMRC to have discretion in their review of different cases. With the current limit being raised to £60K for personal contributions, what are your plans for this year?

@stephenkelly3431 Жыл бұрын

Friend mentioned that I could be accused of recycling some of my pcls (£37k received March 23) if I increase my contributions to my DC pension scheme in the last year of employment (I.e. this year). I had no idea about this and do not want to fall foul of HMRC. I took my pcls to invest in 2 cash ISAs for myself and my wife so we could lock in tax free return of 4.3% which is better than pension fund performance at the moment I have read all information but having difficulty understanding. Can you confirm, for recycling purposes, is the additional pension contributions assessed against all pension contribution (me, my employer and tax relief added) across all pensions ( dB and DC) for the 5 year assessment period. 2 tax years before pcls, the tax year received and two years after. I am a civil servant and my employer and I have paid on average about £40,000 each year for the last 5 years into a combination of my dB (alpha scheme) and my DC scheme. If I remove my employers contributions, then I have paid on average about £16,000 total contributions to my dB (alpha civil service) and DC ( AVC) scheme over the last 3 years and £20000 averaged over last 6 years This year(23/24 tax year), my final year before retirement, my contributions will only be made to my employers DC scheme and will in total ( employer, personal and 20% tax relief combined) be less than £26,000. Hopefully I have nothing to worry about since this is less than my usual contribution (i.e. £16000(combined DC and dB) +£11,100 (my intended increased contribution i.e. 30% of £37000 pcls)=£27,100 ( which is more than my intended total contribution of £26000). Can you confirm I have used the correct assumptions wrt my normal pension contributions. Is it correct to include the total I have paid to both my dB and DC schemes over the last 3 years for assessment purposes? Also, I have always used my full allowance (£40k) which has now gone up to £60k so hopefully another reason not to worry.

@cameronjamespensiontransfer Жыл бұрын

@@stephenkelly3431 Hi Stephen If you have kept contributions fairly stable, then there is very unlikely to be any issue, especially if the recycling rules only apply if you pre-planned to do it. They aren't trying to catch people out who may have taken too much PCLS, and find themselves in a position where putting it back into the pension seems a better idea, they are looking for people who premeditated doing this, and when you compare the contribution to previous contributions, it sticks out like a sore thumb. In regard to your pension, why did you take the PCLS, and thus likely limit your tax-free PCLS in the future to invest at a guaranteed 4.3%, when you could have also done so from a pension? I would also mention that investment performance has been fantastic this year, with the US having one of the best starts to the year in history? You will find that many balanced portfolios are up a good 6%+ this year, with higher equity portfolios up the best part of 10% this year, returns of c.10% and 18% annualised, far superior to 4.3%.

@stephenkelly3431 Жыл бұрын

Thank you for the reply. Both my wife and I have excellent DB pensions(combined £55k) and ~£150k (each) in DC(AVC) pensions but very little in the way of cash investments. Thought it might be good to balance the portfolio. Good news to hear HMRC are not actively looking to penalise people like myself.

@cameronjamespensiontransfer Жыл бұрын

When you say very little in the way of cash investments, do what you mean? What is the rough equity weighting of your DC pots?

@mwscuba 2 жыл бұрын

Ok what about if you had so 40k in an Isa and you paid it into your pension while then taking out 40k of the tax free money ?

@guyr7351 2 жыл бұрын

The money from the ISA is tax free when you take it, but you get no tax relief when investing into it. I think you can recycle your ISA money into your pension and get the tax relief on it as you will have in theory paid tax on it prior To I vesting it into the ISA. The £40K would then become £50K BUT there is an annual limit on how much you can pay annually into your pension and get tax relief of £40K or 100% of your salary. So if your in a company scheme you would almost certainly exceed the allowance

@cameronjamespensiontransfer 2 жыл бұрын

Yes, it can be swings and roundabouts. The annual allowance tries to stop people from engineering such situations

@mwscuba 2 жыл бұрын

@@guyr7351 ok cheers so the HMRC don’t count that as recycling money from out of the pension and back in again.

@Jeffybonbon Жыл бұрын

I have a small sip worth 100k i am taking 350 per month tax free money until it runs out I dont wish to touch the taxable part of my pension until i am 75 I work for a company and they pay into my pension am i braking any rules I am 65 but i wish to carry on working

@cameronjamespensiontransfer Жыл бұрын

Sounds like good prudent planning with your withdrawals. Without a full overview, we could not advise if you are breaking any rules. What are you currently contributing this year?

@Jeffybonbon Жыл бұрын

@@cameronjamespensiontransfer My contributions over the past years has been around 1k a month and it will be the same again this year so my contrbutions will not be higher because i have recived the £350 per month

@cameronjamespensiontransfer Жыл бұрын

OK noted and understood

@JoePrivett-cr5np Жыл бұрын

If I have a pension of £100k, I take my 25% tax free lump sum and recycle it into another pension of £100k, now £125k, then take 25% tax free off that, this would equal £31,250. This is how the recycling maths works and what the government don't want you to do :)

@cameronjamespensiontransfer Жыл бұрын

Hi Partially correct. Not only would you get the extra PCLS, but your contribution would also attract 20% tax relief from HMRC so would be topped up to a £31,250 gross contribution. So, you'd effectively get 4 lots of tax relief, PCLS x2 and gross top up x2.

@JoePrivett-cr5np Жыл бұрын

@@cameronjamespensiontransfer Does the tax relief get added to the pension pot, or come off your income (if you have one) ?

@cameronjamespensiontransfer Жыл бұрын

@@JoePrivett-cr5np Added to your pension pot at 20%. Any higher or additional rate tax saving is then processed by self assessment at year end

@michaellister4889 8 ай бұрын

Leave it in and let it grow 😂😂 not in the last couple of years - get it out and enjoy it before the politicians remove the right to the tax free lump sum.

@cameronjamespensiontransfer 8 ай бұрын

Hello Thank you for your comment. Pensions are, by definition, a long term investment, and markets go up over the long term, so it's statistically the best thing to do, but yes, been a tough sideways two years, although this year much better. Even if the 25% PCLS were to be removed, whilst the tax benefits would obviously not be as good, you will still be better off in the pension, saving a higher rate of income tax than you will likely pay in the future, whilst avoiding IHT. But no hard and fast rule, and everyone's situation different!