Two pensions - taking 25% tax free from one

[coetzeeh]

I am PAYE with private pensions.

I have two pension pots and considering taking the 25% tax free cash from the smaller one (previous employment), leaving remaining 75% invested. I am working full time.

Before I progress this avenue I wanted to check I can take the tax free sum from one pension (I am of age), and the 25% from the second pension at a later stage as and when?

Given I have not reached the LTA by some margin I need to be sure that taking 25% from the smaller pension won't restrict me in any way to continue paying into my pension (and I am aware of HMRC recycling views).

Many thanks.

[N8CYL]

Yes....anytime over 55 years of age.

[Mattt]

Yes it will cap future contributions to £4K not £40k per annum

[Stay in Bed Instead]

Mattt said:

Yes it will cap future contributions to £4K not £40k per annum

No it doesn't.

Accessing the Pension Commencement Lump Sum (the 25%) does not trigger the Money Purchase Annual Allowance (the £4,000 pa limit).

It is the drawing any flexibly accessed pension that does that (the 75%).

[tight fart]

I think stayinbed is correct, you can take the tax free 25%, it’s only when you draw any of the taxable 75% you trigger the £4K max allowance, but take advice.

[Brads67]

What are the recycling rules ?

[coetzeeh]

Brads67 said:

What are the recycling rules ?

Unsure what the actual rules are but gather HMRC will take a dim view if you take 25% tax free and slug that back into pension - gaining futher relief.

[Brads67]

How would you be gaining tax relief as you would have put it into your crystallised funds which attract tax.?

Or am I getting this wrong

[Stay in Bed Instead]

Brads67 said:

How would you be gaining tax relief as you would have put it into your crystallised funds which attract tax.?

Or am I getting this wrong

New contributions create a new uncrystallised fund. There is a marginal gain in recycling.

PCLS £8000

Net contribution £8000
Tax relief £2000
Total contribution £10000

PCLS £2500
Tax on balance (20%) £1500
Net benefit £8500

If you can structure it so there is no tax on the balance, you have turned £8000 into £10000.

[JulianPH]

coetzeeh said:

Brads67 said:

What are the recycling rules ?

Unsure what the actual rules are but gather HMRC will take a dim view if you take 25% tax free and slug that back into pension - gaining futher relief.

Basically, HMRC are generally comfortable if your contributions remain at the same or lower level and frequency after you take your tax free cash, but the red light and klaxon will go off if you star to increase contributions or add an unusual lump sum.

You do not want to be doing this!

[JulianPH]

Brads67 said:

How would you be gaining tax relief as you would have put it into your crystallised funds which attract tax.?

Or am I getting this wrong

Crystallised funds only attract tax when you withdraw them (obviously apart from the tax free element).

They still grow completely tax free within the pension and further contributions (within the limits) still benefit from full tax relief.

In any event, new contributions are not crystallised until you request this, so sit separately to your current crystallised funds.

[henrycrun]

Does anyone know of an online outcome calculator that can include existing income to display tax paid on 25% withdraws ?