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The Spaniard

Extra Income For Low Income Pensioners?

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Suppose that Bob is 65, with a state pension of £7000 p.a., no other income, and a small pension fund.

After 6 April 2015 he takes (draws down) £3,600 from his pension fund.

The first £900 (25%) of this is tax free; the other £2,700 is also tax free since Bob’s total income is now £9,700, still well below the personal allowance.

He then puts £2,880 back into his pension fund, which is credited with £3,600 thanks to £720 from the taxpayer.

So Bob has put in £2,880 and taken out £3,600, without diminishing his pension pot and with no tax liability.

He has been given an extra tax free £720 by the taxpayer and he can do this every year until he is 75.

Is this 'revolving pension' arrangement allowed under the new regulations?

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