Answers · UK 2025/26
What is the pension recycling rule for the tax-free cash lump sum?
Pension recycling rules prevent you from taking your pension tax-free lump sum (PCLS) and then making significantly increased pension contributions -- a practice HMRC will treat as avoiding tax.
Full answer
If you take a pension commencement lump sum (tax-free cash, PCLS) and then use it to make increased pension contributions, HMRC may treat this as "recycling" and impose a tax charge on the original PCLS. The recycling rules apply when: (1) you take a PCLS, (2) your pension contributions increase significantly (by more than 30%), and (3) the increase in contributions exceeds £7,500. All elements must be present. HMRC takes a 6-month look-back period. The charge can be up to 70% of the PCLS. Safe approaches include using the PCLS for non-pension investments, or contributing to a completely different person's pension.
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.