What is tax-free cash recycling?
‘Recycling’ is where a tax-free cash lump sum is withdrawn from a pension plan and then some or all of the money is re-invested into the same or another pension plan. This recycled contribution would then get tax relief as any normal contribution would do. Since 6 April 2006, the government has put a restriction on this to prevent people getting tax relief on both the contributions they made to their pension plan, and the money they re-invested. With many pensions you can take up to 25% of your fund as a tax-free lump sum. The tax-free cash recycling rules apply if the amount taken is more than 1% of the lifetime allowance. For the 2009/10 tax year, the lifetime allowance is 1.75 million – rising to 1.8 million in 2010/11. Restrictions also apply if the additional contribution exceeds 30% of the tax-free cash sum taken, and the recycled contribution results in contributions to all pension plans being ‘significantly increased’. A significant increase is where: • the total tax-free cash
