‘Thousands will be hit’ by pension tax

By Leslie Berry

Accountants have underlined financial advisers’ warnings for private consultants also working in the NHS not to be caught out by unexpected tax charges arising from last April’s pension rule changes.

Blick Rothenberg LLP accountant and partner Nimesh Shah claimed ‘thousands’ could be hit by the double whammy.

Firstly, there is now an annual cap of £40,000 in the amount of pension contributions given tax relief and, secondly, a £1.25m limit on pension pots.

Breach this limit and, as previous Independent Practitioner Today articles have explained, you could face a 55% tax charge on the excess.

Mr Shah said: ‘The rules are particularly troublesome to medical professionals who are members of their own private pension and the NHS Pension schemes. To test these new limits, you have to combine private pension arrangements and the NHS Pension Scheme.’

But it was difficult to assess the contributions being made under the NHS scheme, so limits could be unknowingly and easily breached.

‘Medical professionals should be reviewing their pensions as soon as possible but not make any hasty decisions to leave the NHS scheme, as this can still provide valuable benefits despite the tax charges.’

Simon Bruce, managing director of specialist financial planners Cavendish Medical, said his firm had been regularly warning senior doctors of potential problems.

‘The yearly pensions’ cap of just £40,000 is easily breached by the average senior consultant’s income – particularly if in receipt of a clinical excellence award. In addition, the calculations needed to find your annual pensions savings are particularly complex.

‘Many doctors can come unstuck without realising. The pension contribution on your payslip is not the same as your “deemed contribution” under annual allowance rules. HM Revenue and Custom’s calculations are based on the estimated growth of the pension in the year – sometimes very different to what you have actually paid into your pot.’

He warned doctors the onus was on them to calculate and declare any excess contribution on their self-assessment tax return.

Some doctors will not know they are heading for a substantial tax bill until they receive a letter from the NHS Pensions Agency, long after the relevant tax year has closed.

Mr Bruce continued: ‘Add to this the fact that many of the tax letters our clients have received have been wrong – mainly down to the agency allocating a back-dated award to the wrong tax year – and you soon realise why an expert eye is needed to avoid generating unnecessary tax bills.’

‘Since April 2012, the overall limit to lifetime allowance has been reduced by over 30% to just £1.25m. If the value of your pension rights exceeds this figure, it may be useful to apply for the Government’s new protection plan, Individual Protection 14 (IP14) which will allow you to protect your current pension fund value up to £1.5m.’

Cavendish said it had helped many new clients who were previously poorly advised – either because former advisers or accountants did not consider it or did not wish to advise on the complex NHS Pension.