Retirement annuity plan

From Wikipedia, the free encyclopedia
Jump to navigation Jump to search

A retirement annuity plan (RAP) is a UK pension plan designed to build a lump sum for retirement. Part of the lump sum must be used to buy an annuity and part can be taken a tax free lump sum.

The plans were introduced under section 226 of the Income and Corporation Taxes Act 1970 and are often referred to as section 226 contracts; however they are currently legislated under section 620 of the Income and Corporation Taxes Act 1988 and are therefore also known as section 620 contracts.

Tax treatment[edit]

Contributions receive basic tax relief claimed at source (although this was only introduced in 2001); the income and gains in the plan are free from tax (with the exception of the non-reclaimable 10% tax credit). At maturity the tax free cash can be taken; the tax free cash lump sum is calculated with reference to the initial annual income. The formula is often described as: the tax free cash is equal to three times the residual income.

This tax regime wass abolished under pension simplification introduced on 6 April 2006.

See also[edit]