A significant number of Hospital Consultants have contacted us in recent months requesting tax advice in relation to Annual Allowance charges. In most cases they weren’t aware of the change made on 6 April 2016 which has resulted in unexpected pensions savings tax liabilities for the first time.
The Annual Allowance tapering rules introduced for the 2016/17 tax year meant that instead of a pensions savings limit of £40,000, this could be reduced to as little as £10,000 depending on levels of ‘threshold income’ and ‘adjusted income’. It is not just salary and pension growth that is considered. Other income such as private fees, dividends, bank interest or property rents are included in the calculation.
There is the ability to use unused relief brought forward from the three previous fiscal years to mitigate against any excess arising, and in the 2016/17 tax year this covered most pension savings excess charges that arose for our Consultant clients. However, much of the unused relief available for that tax year was used, leaving little to carry forward to the 2017/18 tax year.
For 2017/18, we have seen several significant liabilities arising – generally five figure sums. There has also been a knock-on impact to the assessment of Payments on Account due for the next tax year (2018/19) which has essentially added the same liability again, split between January and July 2019.
One way to avoid the significant cash flow impact caused by the pension savings charge is to elect for “scheme pays”. Consultants should seek advice from their IFA before opting for this, but it is important to note that for those wishing to use this option for 2017/18, the deadline for making the election is 31 July 2019.
Under Self Assessment, the onus is on the tax payer to correctly complete their tax return. Whilst SPPA will issue Annual Allowance statements to those individuals exceeding pension savings of £40,000 in a year, they do not know who will have a tapered Annual Allowance limit and who will not. Therefore, Consultants with tapered Annual Allowance limits will need to specifically request their pensions savings information from SPPA. It should be noted that such information will, as a matter of course, be forwarded direct to HMRC for all Consultants.
If you would like to discuss your own personal circumstances regarding the taxation of your pension savings please contact a member of our specialist medical team.
Partner and Head of Medical
The information in this blog should not be regarded as financial advice. This is based on our understanding in February 2019. Laws and tax rules may change in the future.