Specialist financial advisers to the medical profession have warned that more doctors will be caught by the lifetime allowance pensions savings limits after the Chancellor froze the current threshold until 2026.
Rishi Sunak used the Budget to announce a series of ‘freezes’, including the lifetime allowance, which will stay at its current level of £1,073,100 until April 2026 instead of increasing in line with inflation.
The allowance is a limit on the amount of pension savings which can be accumulated overall without triggering a tax charge.
Patrick Convey, technical director at specialist financial planners Cavendish Medical, explained: ‘The pre-Budget speculation had warned of a tax hike to help fund substantial Covid support measures.
‘Instead, these tax threshold freezes will target individuals such as doctors who accumulate large pension pots due to the very nature of making pension contributions into the NHS scheme over several decades.
‘Previous reductions to the lifetime allowance over the last 15 years mean it is now not only particularly complex to navigate but it also catches many more workers.
‘Every middle to senior doctor will be caught out by the new limits and could incur punitive tax rates of up to 55% on anything taken as a lump sum or 25% on top of their marginal rate of income tax if taken as income.
‘The effect is likely to be more senior, experienced doctors retiring early to avoid these charges.’
The Chancellor also announced the inheritance tax and capital gains tax allowance will both remain at current levels.
Personal tax thresholds for both basic and higher rate taxpayers will rise next year but will then be frozen until 2026.
Corporation tax to increase in 2023
Mr Convey added: ‘The Chancellor said it was ‘fair and necessary’ for businesses to contribute to the UK’s post-pandemic recovery. From April 2023 the rate of corporation tax paid on company profits will increase from 19 to 25%.
‘This only applies to companies with profits above £50,000 but will impact many successful private medical practices.’