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I have a site that has been hit hard with Penguin and Panda. So hard I have put up another domain and installed a CMS and rewritten the content the page has a good PageRank but was hit hard with alorigthmic penalties.
My question is what do I do with the old domain?
301 redirect to the new domain? Another type of redirect? None at all and just leave the old domain drift into non existence?
If I were you, I'll follow this procedure to save your website.
For this kind of situation (penalized by Panda and Pingouin), I already redirected by 301 old penalized domains to new ones.
I changed a little the content, the design, clean bad external links and get more good links to my websites. For the moment, Google doesn't penalize my new domains and my positions in SERP almost came back after few months.
If you have a site that has been truly 'hit hard' by either Google Panda or Penguin then decide to open a new domain and redirect all requests from site A to site B then the penalty can pass, frankly anyone suggesting otherwise has not felt the full wrath of Penguin or Panda and in fact the likelihood is that they have been hit by the everyday algorithms.
This may not be instant and can take several months to happen, I have first hand experience. If Google associates yourselves with the new site with old it only makes sense that penalties are passed otherwise everyone would be just buying new domains and redirecting, Google doesn't want this.
So you have many choices:
Take down the old domain and move content to new domain. Do not tell Google you've moved, do not redirect and so on... It's time to start again but with the content you already have.
You leave the old domain with the content it has on it, you start a new domain with brand new content and you operate two sites. This way at some point your original domain may come back, Matt Cutts has said a few times that penalties degree overtime, question is how long this takes, no one knows and many are still effected. But if it does work say in 1-5 years time you may have 2 well ranking sites.
Disavow Tool
It's worth mentioning that even after people have removed links these links a lot of sites still don't come back, in fact its estimated that only 1% actually get their rankings back. The biggest issue people have is identifying how they been hit. There is many times such as manual and disavow tool does work well with reconsideration requests, but if it's an automatic slap with no notification then likely even removing the links won't help... Worth checking out: http://www.seowizz.net/2012/10/the-disavow-tool-works-real-sites-real-recoveries.html
Case Studies
As you can see the 301 works temporary and then drops off.... a site that has been hit hard by a Penguin update is hard to come back from even when 301ing... Otherwise this Google update would not work if people could just setup shop after being smacked down and passing the full weight from the original site, it is also worth mentioning that 301 never retains the full weight of the original page as well.
