Hospital doctors and GPs are lobbying the
government to amend the pension tax rules as the current system of restricting
tax relief on pension contributions means many doctors paying almost all of the
extra salary back in tax if they take on additional responsibilities or work
additional shifts. This is an issue that doesn’t just affect doctors as it
potentially restricts the tax relief available to other individuals with high
income.
The NHS Pension Service
have alerted members of the NHS Pension Scheme that they could receive a tax
bill if their pension savings exceed limits set by HM Revenue and Customs
(HMRC). These limits are known as the annual allowance, which is calculated
each year, and the lifetime allowance, which is calculated based on overall
pension savings.
The normal annual pension
allowance is currently £40,000 each tax year and limits the amount of pension
contributions which qualify for tax relief. The limit covers the combined contributions
paid by the taxpayer and their employer. A tapered annual allowance was
introduced in April 2016 with the intention of reducing pension tax relief for
high earners.
It applies to those with
adjusted incomes of over £150,000 and threshold income in excess of
£110,000. The rate of reduction in the annual allowance is by £1 for every
£2 that the adjusted income exceeds £150,000, up to a maximum reduction of
£30,000 at £210,000. This is a complex calculation and we can help you plan to
minimise the impact of the rules as the individual is taxable on the excess
pension contributions over the annual limit.
REQUEST THAT THE PENSION
CHARGE IS PAID BY YOUR FUND BY 31 JULY
The Pension Annual
Allowance tax charge depends on the individual’s marginal rate of tax. Where
their income exceeds £150,000 it would be at 45%. Thus if the pension input for
2018/19 Was £40,000 and the limit is tapered to £10,000 the excess of £30,000
would incur a £13,500 tax bill on top of their normal tax liability.
You can ask your pension
provider to pay HMRC out of your pension fund if you’ve gone over your annual
allowance and the additional tax is more than £2,000.
The deadline is 31 July 2020 for the 2018/19 tax year.