By Simon Misiewicz Article relevant to the tax year 2017/18
Are you aware of recent changes to pension contribution tax rules for GPs?
Could you be facing a tax charge on the pension contributions you make?
There have been a few noteworthy changes to pension tax rules which could affect GP clients, so I wanted to utilise a blog post to outline ways in which GPs can reduce their tax liabilities around pension savings. This article is based on another article we previously wrote about pension contributions limits being reduced from £40,000 to £10,000 for certain high rate tax payers.
Our team of medical professional accountants are focused on creating greater revenues for your medical professional business such as GPs, locums and dentists, whilst being tax-efficient. The amount GPs are able to save into their pensions annually before incurring taxation is being reduced, and any active NHS pension scheme member earning over £110,000 might be affected. It’s not the money paid into the pension that’s used to calculate contributions but the pension growth on each tax year.
Reduction of the pension allowance
The tapering of the annual allowance commenced on 6 April 2016, and reduced the standard £40,000 allowance for pension contributions by £1 for every £2 earned over £150,000 – down to a minimum of £10,000 allowance. This new tapering could reduce the annual allowance by up to £30,000, meaning a potential additional tax payment of £13,500. I’m advising my GP clients to consider if they are in the top 10% of earners in the medical sector in the UK. Any GP with threshold income over £110,000 may find their pension contribution could incur a tax charge. One of the most important considerations to take into account immediately is to make calculations, to see if any unused pension relief can be absorbed or is available from the previous three tax years. GPs should also request an annual allowance pension saving statement from the NHS pensions agency, whilst GPs affected by the tax changes should review their pension scheme membership. I would also advise GPs to consider if they are still making pension payments into an added-years contract, or who have additional pensionable work outside their Practice – such as locum, of out-or-hours sessions.
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Decrease profits of your GP practice to maintain your pension contribution allowance
For the current 2017/18 tax year limiting profits is a good move for GPs who are likely to be affected y the tax change. Some GP clients, for example, have dropped sessions to reduce their tax liabilities. Other GP clients are considering a profit reduction by undertaking repairs to the surgery or investing in extra capital equipment. My top three tax tips for GPs to consider immediately around pension savings are:
- Determine the amount of unused tax relief brought forward from the last three years.
- Assess total taxable income to determine whether the £110,000 threshold income figure is breached.
- Consider whether ongoing membership of the NHS pension scheme is worthwhile for the future.