Future Healthcare

Pension tax porkies

More senior doctors are triggering harsh tax bills because of pensions tax. However, rash decisions are unwise, warns Hugh Davies, and there are five porkies to watch out for.

We have reported many times in Independent Practi­tioner Today in recent months that more senior doctors than ever before are facing substantial tax bills because of stricter rules regarding pensions tax. 

Since the so-called ‘pension simplification’ in 2006, total tax charges from breaching the annual allowance have netted HM Revenue and Customs over £1.2bn and lifetime allowance breaches have generated a revenue of £335m.

As you are aware, the yearly restriction on the amount you can contribute to your pension free-of-tax is known as the ‘annual allowance’. 

New rules decrease the standard annual allowance of £40,000 to as low as £10,000 a year for doctors with a ‘threshold income’ of more than £110,000 – this is known as a ‘tapered annual allowance’. Excess pensions savings above the allowance will generate a tax bill charged at your marginal rate of income tax.

Caught in net

As the tax-relievable pensions savings limits are now lower, the net is catching more and more doctors who are tied into making contributions into the NHS Pension Scheme. Workers with private pensions, on the other hand, can simply adjust their pension contributions to fall below the cap – albeit with a smaller pension as a result.