You have just a few more months to apply for a government scheme which can protect the value of your pension from substantial tax charges. And to give added focus, HMRC has released data showing it clawed an extra £126million in tax from individuals caught out by the reduced tax-free pension saving allowance limits in 2015-2016 – a 62 per cent rise from the previous year.
The lifetime allowance for pension savings – the total amount that can be built up and taken from pensions without triggering an additional tax charge – was reduced to £1million on 6 April 2016. If you save over this limit – and even middle-earners could breach the threshold if accumulating NHS benefits for many years – you will face tax charges of up to a staggering 55 per cent on the excess savings.
Last year, HMRC collected extra tax from 1,539 individuals who had breached the allowance when it was set at £1.25million. Many more savers will breach the limit now it has been reduced further.
The government introduced a protection scheme, Individual Protection 2014 (IP14), two years ago which allows savers to restore the value of their lifetime allowance back to £1.5million provided certain criteria are met. Sadly, many doctors will miss this valuable opportunity because they are unaware that the deadline for applications closes on 5 April 2017.
Pensions are already complex and now there are several different protection schemes which vary in terms of who can apply and what type of financial protection they offer. In addition, the lifetime allowance limit has changed considerably in recent years. It is very difficult for the busy consultant or doctor to keep up-to-date with this specialist area and all too easy to breach the savings limits without having pension protection in place.
If your pension was valued in excess of £1.25 million as at 5 April 2014, you may be eligible to apply for IP14 allowing you to protect up to £1.5million. Remember that the lifetime allowance limit applies to the sum of your NHS pension value plus any private pensions you hold.
You will need to move quickly to get your application in place by April as there are a number of valuations to be obtained first which can take several months. Don’t delay if this does apply to you – you should act now to defend your future benefits against unnecessary tax charges.
Are you confident in your own position? For a second opinion, call one of our advisers on 020 7636 7006.