Adviser > Individual > Drawdown > Recycling
Recycling
What is recycling?
This is where a pension scheme member takes tax-free cash (TFC) and re-invests the money in a registered pension scheme in order to get more tax relief.
HM Revenue and Customs (HMRC) introduced the rules as they were concerned that recycling could be used as a way to exploit the generous tax relief that is available on pension contributions. The pension scheme member is responsible for ensuring that recycling is avoided.
What are the conditions of recycling?
The recycling rule applies when all of the following conditions are met:
| Condition1 | Was the action of taking TFC pre-planned with the specific aim of making pension contributions? |
| Condition 2 | Did the amount taken exceed 1% of the Standard Lifetime Allowance? |
| Condition 3 | Did the client increase their ongoing contributions, including tax relief, by more than 30% in comparison with the amount being paid prior to taking TFC? |
| Condition 4 | Did any increase in the amount being contributed total to more than 30% of the amount of TFC taken? |
Further guidance on the recycling rules and conditions are laid down in the HMRC’s technical manual RPSM4140920.
If my client takes income out of his pension and then makes contributions back into the plan is this categorised as recycling?
Providing the client can answer no to just one of the recycling conditions, they are not recycling.
For more information, have a look at our Income Drawdown leaflet on Tax Free Cash Recycling.
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