Tax advice of the week: Pension recycling

If you turn 50 by 5 April 2010, you can take a tax-free lump sum from your personal pension (now known as a 'commencement payment' or CP) of up to 25% of your fund, says Tax Tips & Advice. Miss the deadline for doing so, however, and the latest rule change means you'll be waiting until you're at least 55.

Another point to watch is that if you limit your CP to £17,500, you can reinvest it straight into another pension fund and claim up to £9,750 in tax relief in a move known as 'pension recycling'.

HMRC has introduced "very wide ranging anti-avoidance rules" to put a stop to the practice for very large sums. However, you can still use a big "get out" which the taxman "doesn't make much noise about". That's where the CP is less than 1% of the pension's Lifetime Allowance (LTA) currently £1.75m hence the £17,500 limit.

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