As pensions become more and more of
a worry, we are warning local businesses and individuals
to avoid getting caught up in “pensions recycling”.
Pensions recycling involves a scheme whereby a member
withdraws their tax-free lump sum from the pension fund,
as part of a phased retirement. This is permitted under
the new rules of pension simplification.
However members then reinvest the lump sum back into
the member's scheme, which attracts a tax credit on the
contribution. If the scheme member was a higher rate
tax payer, further tax relief against the individual’s
personal tax liability is also gained. This is not permitted
and some scheme members have even been known to repeat
this process four times which can double the individual’s
pension plot. However HM Revenue and Customs has now
issued draft legislation to prevent this.
Getting the most out of your pensions is naturally one
of the key financial issues for most individuals. However
any scheme you enter into should always be within the
law.
“The new draft clause of the Finance Bill 2006
makes it clear that reinvesting lump sums back into a
member’s scheme is not permitted.
“While this new legislation is likely to only
affect a small number of individuals, it’s worth
seeking advice from your accountant now to make sure
you are within the law.”
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