What changes to pension tax rules affect GPs?

Chris Street

15th December 2017

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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By now you would have noticed that the number of tax changes means that you need to plan for the future to ensure that you keep more of what you earn. Property investors: How does Section 24 (mortgage interest relief) affect you? How are your properties going to perform once Section 24 (mortgage interest relief) comes into full effect? Doctors/Dentists: Have you incorporated your private practice work into a limited company? Have you structured it to ensure that you and your family takes advantage of the tax breaks? Stephen Covey said that “people climb to the top of the ladder, only to find out that it is set against the wrong wall”. Many people go about their business and at the end of the year they feel that they have not moved forwards. The finance, tax and wealth sessions have been designed to review your financial and tax plans for the next five years by reviewing your income streams, lifestyle costs, investment returns, legacy and estate planning needs. Learn more about my Finance, Wealth and Tax Planning service – Click Here.  Please use the redeem code “CRM20” to get 20% off your next wealth planning call, face-to-face in our Nottingham office.

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.

I have written other related articles, which will provide additional reading material, such as: Tax relief on pension contributions Tax relief on SIPP pensions Tax planning around IR35

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