Doctors falling foul of harsh pension savings limits are facing average tax bills of £29,635 according to HMRC following a Freedom of Information Act request.
The annual restriction on the amount you can contribute to your pension has been reduced substantially in recent years, known as the ‘tapered annual allowance’, This reduces the standard annual allowance of £40,000 to as low as £10,000 per year for high-earning doctors.
The annual allowance is particularly complicated before we consider the rules surrounding the new ‘tapered’ version. Part of the problem is that you must first establish your ‘threshold income’ which is your income from all sources (not just NHS salary) and includes items such as private practice earnings, dividends from investments and buy-to-let property income. If this totals more than £110,000, you must then calculate your ‘adjusted income’ which is your threshold sum plus your NHS pension input. If this totals £150,000 or more, you will be liable for a reduced annual allowance on a sliding scale.
Calculating pension contributions for a defined-benefit scheme such as the NHS is difficult. It is not based on the amount that you and your employer have physically paid into your NHS pension but on the deemed ‘growth’ in the year.
You will not know your NHS input until the end of the tax year and may not gain the required information in time as the statement may arrive many months after your tax return has been submitted. We have also found many statements to contain computer errors.
In the last twelve months we have carried out many ‘rescue’ missions with new clients who had previously struggled to get on top of the allowance calculations. Most high-achieving professionals will have scarce time to ensure they are not walking blindly into large tax payments.
Make sure that you have your own situation checked well ahead of time. We would be happy to help. Please telephone 020 7636 7006 to discuss further.