Budget relaxes but doesn’t cure pension tax trap
By Edie Bourne
Independent practitioners and their advisers have welcomed long-awaited lower tax charges on their pensions from this month.
Chancellor Rishi Sunak’s Budget last month raised the threshold for tax-free allowances.
Under previous rules, anyone with a ‘threshold’ income – the total income from all sources – of £110,000 or more was subject to a reduced annual allowance. The standard figure is £40,000 but it tapers on a sliding scale to as low as £10,000 for some high earners.
Mr Sunak put this threshold up by £90,000 to £200,000 in a move he said would remove 98% of consultants and 96% of GPs from the ‘taper’ altogether.
Huge tax bills generated by the tapered annual allowance triggered a workforce crisis with many doctors choosing to work less hours or retire early.
Patrick Convey, technical director at specialist financial planners Cavendish Medical, told Independent Practitioner Today: ‘The tapered annual allowance has caused misery for many doctors, often facing large tax bills which are difficult to predict or manage in advance.
‘Many will be disappointed that the ‘taper’ has not been scrapped entirely, as it is needlessly complex for defined-benefit schemes such as the NHS, but this move is a definite improvement on the tax situation in recent years.’
But it was not all good news for doctors, as the Chancellor also cut the minimum annual allowance from £10,000 to just £4,000 for those with incomes over £312,000.
Mr Convey said highest earners should carefully consider the value of pension saving and seek expert advice to find the best way forward.
‘Despite the positive announcement regarding the taper threshold, it is still imperative that doctors look at their own tax position in detail to ensure they are making the most of opportunities to reduce liabilities where possible and do not face unexpected charges.’
The Budget confirmed that the lifetime allowance, governing total tax-free pension savings, will rise this year in line with inflation from £1,055,000 to £1,073,100.
The Association of Independent Specialist Medical Accountants (AISMA) welcomed the £90,000 annual allowance threshold rise.
Spokesman Andrew Pow said: ‘This means that any doctors earning up to £200,000 will now get the full annual allowance of £40,000. While this will not remove higher earners with growth above £40,000 from having a tax charge, it will mean most doctors will not have their annual allowance tapered down.
‘It will be important that NHS pension records are kept up to date so that higher-earning doctors can assess their tax position.’