By Simon Misiewicz
Article relevant to the tax year 2017/18
Are you a high-earning GP or Dentist, and concerned about your tax liabilities in 2018?
I was in a tax planning meeting with a new GP client yesterday, and have seen more concerns being expressed about tax liabilities in general from high-earning Doctor and Dentist clients of late.
This general concern from medical professional clients is on the rise, given the impact that could potentially have on the wealth and assets of high-earning GPs and Dentists in the UK.
Our team of medical professional accountants are focused on creating greater revenues for medical professional businesses such as GPs, locums and dentists, whilst also being tax-efficient.
GPs or Dentists with large pension pots still working full-time in a high-earning Practice could, for example, see the majority of their pension growth taxed when they settle their tax bills next year.
Changes to the annual allowance on pension contributions from April 2016 means that medical professionals with a gross income over £150,000 from all sources have their £40,000 allowance reduced.
Many of my GP and Dentist clients have been planning for this change to come in early 2018, but it’s worth considering that inflation could well be double the figure compared to the previous year.
Pension growth will rise, but as I’ve been advising my clients, it will also mean that more high-earning medical professionals will be pushed above the £150,000 income threshold, leaving them liable for income tax contributions, even though their pension annual allowance has been reduced incrementally.
This means that major percentage of long-serving, high-earning GPs and Dentists with a significant pension pot established already will see an impact.
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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 take 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 feel that they have not moved forwards.
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The annual allowance of £150,000 is based upon income from all sources, which could include being a GP or Dentist, as well as buy-to-let property investments.
This covers all sources before any pension deductions, and also includes the growth in pensions over-and-above their contributions. Many GPs and Dentists, particularly those at the end of their medical professional careers, will have built up large pension pots.
For a high-earning GP or Dentist partner in a Practice with a personal annual income above £210,000, the growth in their pension for annual allowance purposes could be £65,000 and if they have no unused tax relief to bring forward, this would mean in the region of £55,000 of taxable earnings above the allowance.
My GP and Dentist clients are thinking carefully about the NHS pension scheme, but the larger issue now is the annual allowance, and the £1m lifetime allowance for medical professionals in the UK.
Any GP or Dentists earning over £150,000 annually should be seeking tax planning advice immediately.
I’ve written other related articles which will be useful for medical professionals, including: