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HMRC internal manual

Pensions Tax Manual

From
HM Revenue & Customs
Updated
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Unauthorised payments: deemed or specific situations that are unauthorised payments: recycling of pension commencement lump sums: pre-planning

Paragraph 3A Schedule 29 Finance Act 2004

Remember that one of the conditions for the recycling rule to apply is that the recycling must be pre-planned - the individual must have intended from the outset to take a pension commencement lump sum to enable significantly greater contributions to be paid into a registered pension scheme by or in respect of that individual.

The requirement for pre-planning as a trigger for the recycling rule means that an individual has to make a conscious decision (and will therefore be aware of that fact) to use a pension commencement lump sum as the direct or indirect means to pay significantly greater contributions to a registered pension scheme. Where, on the other hand, an individual takes a lump sum and only subsequently decides to use it to pay greater contributions, there is no pre-planning. The onus is not on that individual to prove the absence of the intention to use the lump sum to pay the significantly greater contributions when the lump sum was taken. Instead, the onus is on HMRC to show that pre-planning took place. This means that in the event of a dispute between a HMRC officer and an individual about whether any recycling was pre-planned, the onus is not on the individual to prove the absence of intention. However, the HMRC officer will be entitled to take into account any evidence that points towards pre-planning.

Such pre-planning must take place at the “relevant time” which depending on the circumstances may be either at or before the time the lump sum is paid. The “relevant time” cannot be after the lump sum has been paid.

When an individual takes the following steps:

  • decides to use a pension commencement lump sum as the means to significantly increase contributions to a registered pension scheme, and then
  • receives the lump sum, and then
  • pays the significantly increased contributions

pre-planning occurs at the time the lump sum is paid - this is the “relevant time”.

Alternatively, when an individual takes these steps:

  • decides to use a pension commencement lump sum 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

pre-planning occurs when the significantly increased contribution is made - this is the “relevant time”.