Introduction

The availability of tax relief on contributions makes pensions the most tax efficient way to save for retirement. To prevent clients getting tax relief twice on their pension savings, there are restrictions on taking money out of pensions and reinvesting it back into a pension. It’s therefore important that advisers understand the rules surrounding this to ensure clients don’t incur tax charges.

This module should take around 30 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 30 minutes can be claimed.

Outcomes

On completion of this module you should be able to:

  1. Determine if tax free cash recycling rules have been breached
  2. Describe what penalties may apply if tax free cash is recycled
  3. Explain what might limit the recycling of pension income

Post learning assessment

Question 1

Which of the following is NOT a condition of the tax free cash recycling rules?

  1. Tax free cash which has been taken is more than £7,500
  2. Increases in contributions for the tax year (and the two tax years before and after) is at least 30% of the tax free cash taken
  3. Contribution are more than double what has been paid in earlier tax year
  4. Contributions made are significantly larger (generally 30%) that might be expected

Question 2

Which of the following tax charges may apply if someone is found to have recycled tax free cash into their pension?

  1. Lifetime allowance tax charge
  2. Unauthorised payments charge of 40%
  3. Unauthorised payments surcharge of 15%
  4. Scheme sanction charge, normally 15%

Question 3

Ken (70) earns £5,000 from a part time job. He also withdraws £10,000 a year from his SIPP using flexi access drawdown, split £2,500 tax free cash and £7,500 pension income. He wishes to continue funding his pension. How much can he pay into his pension without triggering additional tax charges?

  1. £3,600
  2. £4,000
  3. £5,000
  4. £7,500

Check your answers

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