Accountants welcome scrapping of lifetime allowance on pensions

THE BUDGET.

Independent practitioners’ accountants have given a big thumbs-up to the Government’s announcement that, from 6 April 2023, the Lifetime Allowance (LTA) charge on pensions will be removed and abolished completely in 2024.

James Gransby

James Gransby, vice-chairman of the Association of Independent Specialist Medical Accountants (AISMA), told Independent Practitioner Today: ‘The LTA being abolished takes away any lingering uncertainty over whether an individual is caught in a tax trap. If Jeremy Hunt had simply raised the limit, then many would have been unsure of their position. 

‘The changes don’t mean that pensions tax has disappeared completely, as the annual allowance still remains, but it certainly takes a large number of medics out of scope of the charge.

‘And it has been widely welcomed by the BMA and others, who have worked tirelessly on this issue and are quite rightly delighted with the announcements.’

Tax charges still possible

Andrew Pow

AISMA spokesman Andrew Pow explained that although the changes would also ensure that mid-career hospital consultants in most cases would not be impacted by annual allowance charges, large pay increments above inflation could still lead to charges – but at significantly lower levels.

He said: ‘The abolition of the lifetime allowance, which means the lifetime value of pensions can grow without additional tax charges, may result in more GPs and consultants considering continued NHS service rather than taking early retirement.

‘While some issues remain, the Budget announcement represents a positive step which will ensure our senior clinicians can now be less concerned with pension tax issues as their careers progress.’

 

Richard Norbury

Independent Practitioner Today columnist Richard Norbury, a partner with Sandison Easson specialist medical accountants, cautioned that the announcements on pension legislation would not remove the issue of annual allowance tax for all, but he said the higher limit would help many doctors reduce or extinguish their annual allowance tax liabilities.

He said: ‘Many doctor may have different forms of lifetime allowance tax protection and although the LTA tax no longer applies, there is a limit on the maximum tax-free lump sum that can be taken, which, from 6 April 2023, is £268,275 (25% of the current LTA). 

‘Currently, if the tax-free lump sum is exceeded, the excess is taxed at 55%. But, from 6 April 2023 onwards, the excess will now be taxed at an individual’s marginal rate of tax.

Lifetime allowance may be resurrected

‘For those considering partial retirement and pensionable return under the new proposed rules, they should consider that the LTA may be resurrected in the future.’

The annual allowance limit is set to increase from £40,000 to £60,000 from 6 April 2023.

Mr Norbury advised: ‘Going forward, be mindful that tapering – only to be considered if taxable income exceeds £200,000– can still reduce the £60,000 annual allowance. The lowest tapered value increases from £4,000 to £10,000.

‘In addition, if your 1995/2008 pension scheme grows by less than inflation, the new rules will allow an offset against the 2015 scheme growth.’

Corporation tax

It was been announced last year that corporation tax would increase from 19% to 25% from 1 April 2023. Companies with profits between £50,001 and £250,000 will have their rates apportioned such that the overall rate is lower and companies with profits of up to £50,000 will continue to pay 19% tax.

For investment companies, corporation tax is 25% irrespective of the level of profits.

In scenarios where company accounting year-ends are not 31 March and profits exceed £50,000, an apportioned tax rate will be applicable.

Childcare working parents

This has been extended to children from nine months to school age, but this will be delayed until April 2024 and then a staged implementation.

Mr Norbury added: ‘The “cliff edge” threshold of £100,000 still applies, meaning any parent having adjusted net income over this amount results in ineligibility for the scheme. Tax planning opportunities exist and should be discussed with an accountant.’