RPSM04104930 - Technical Pages: Taxation: Unauthorised Payments: Recycling of pension commencement lump sums: Pre-planning

When is recycling pre-planned?

It must be remembered that one of the conditions for the recycling rule to apply is that the recycling must be pre-planned - the individual 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. Such pre-planning must take place at the “relevant time”.

When an individual takes the following steps:

• decides to use a pension commencement lump sum as the means to increase contributions significantly 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 - 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 - the “relevant time”.

As there must be pre-planning for the recycling rule to be triggered, an individual will know that a conscious decision has been taken to use a pension commencement lump sum as a 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, the onus will not be 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. This would mean that in the event of a dispute between a HMRC officer and an individual as to whether any recycling was pre-planned, the onus will not be on the individual to prove the absence of an intention. However, the HMRC officer will be entitled to take into account any evidence that points towards pre-planning.