No plans announced to tackle annual allowance or lifetime allowance pensions tax woes.
Higher-earning doctors will be paying more tax on their income and their pensions after the chancellor’s Autumn Statement announcements.
Just eight weeks after the now infamous ‘mini-Budget’ of Kwasi Kwarteng, the new Chancellor Jeremy Hunt said he would ‘deliver a plan to tackle the cost of living crisis and rebuild our economy’.
His first major declaration was to reduce the threshold at which the 45 pence additional rate of income tax applies from the current threshold of £150,000 to £125,140 from April 2023.
Patrick Convey, technical director at specialist financial planners Cavendish Medical, explained: ‘This move will mean more doctors paying the additional rate of tax on their income. Private sector workers are often able to keep their salary packages lower by making use of salary sacrifice schemes to avoid coming close to the current threshold, but fixed income employees such as those working for the NHS will be impacted.’
Many doctors were hoping that the Chancellor would take the opportunity to tackle the punitive annual allowance tax issue which is forcing senior NHS employees to retire early or reduce hours. Mr Hunt had been vocal in his criticism of the tax before he became Chancellor.
Mr Convey continued: ‘Sadly, no formal steps were taken to tackle this serious issue which is causing widespread concern in the NHS. Instead, those caught by the annual allowance are likely to be paying a larger tax payment than before.
‘Excess pension savings above the allowance are charged at the doctor’s normal rate of income tax, which, for some who were previously paying 40%, could now jump to 45%.’
Despite media headlines before the fiscal statement, Mr Hunt did not make any changes to the existing plan to freeze the lifetime allowance at £1,073,100 until the 2025-26 tax year – also impacting more doctors who see greater growth than the threshold.
In further disappointing news for investors, the annual capital gains tax allowance will be cut next April from £12,300 to £6,000 before halving again to £3,000 from April 2024. At the same time, the tax-free dividend allowance will be halved from £2,000 to £1,000 and then halved to £500 from April the following year. This move will mostly affect limited company directors who are remunerated through dividends.
Patrick concluded: ‘The Chancellor acknowledged that the UK is now in recession and that things will “get worse before they improve”. He promised an additional £3.3bn of spending in the NHS every year for the next two years.
‘Sadly, this will be of little comfort to the thousands of doctors already penalised by tax for working long hours while facing huge backlogs. As he reached the part of his speech concerning the NHS, there were audible cries of “pensions”, but it seems no efforts have been made to tackle this issue.’
It was announced that state pensions will rise by 10.1% from April in line with September’s inflation rate – retaining the ‘triple lock’ which keeps pensions rising in line with the highest of three factors: the previous September’s inflation figure (CPI), the average wage increase or 2.5%.