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February 14, 2018
The beginning of any new financial year inevitably brings a whole raft of changes to the tax system that need to be taken into account when you’re reviewing your personal finances.
But if you’re a GP, and especially if you’re in the later years of your career, changes that have just been introduced around your pension allowance require your swift and careful consideration.
Regulations around GP pensions have been in the spotlight quite a lot in recent years, but the new rules that the Government has just introduced have the potential to lead to a significant hike in your tax bill.
First of all, if the capital value of your pension benefit exceed £1,000,000, you could now be facing an additional lifetime allowance tax charge of up to 55% if you have not previously applied for pension protection and:
• in the 1995 NHS Scheme, if your standard Pension is projected to be more than £43,478
• in the 2008 scheme (with no lump sum), if your pension is predicted to be more than £50,000.
• you have personal pensions which, when added to your NHS pension, exceed £1,000,000.
Alongside this, the annual allowance pension rules are changing for high earners, and if your income is over £150,000 and you draw earnings from private fees, it may make financial sense for you to form a Limited company to help to shelter your income to assist.
From 6 April this year, individuals with a taxable income for a tax year of greater than £150,000 will have their annual allowance for that tax year restricted.
For every £2 of income they have over £150,000, their annual allowance is now reduced by £1. The maximum reduction will be £30,000, so anyone with income of £210,000 or more will have an annual allowance of only £10,000.
For defined benefit and cash balance arrangements, the employer contributions will be the pension input amount for the scheme for the tax year using the normal annual allowance rules, less any member contributions paid.
High income individuals caught by these pension restrictions may therefore have to reduce the contributions paid by them and/or their employers, or suffer an annual allowance charge.
These rule changes could have a lot of complex implications for individual GPs depending on their particular financial situations and future requirements, and it makes a great deal of sense for anyone who think they might be affected to get professional advice on what can be done to mitigate their impact sooner rather than later.