Following the Budget announcement, statements on spending pledges to fight the impact of coronavirus, freezing of duties on fuel and alcohol and business rates relief for small businesses have grabbed the headlines. However, there was some very welcome news for doctors on pension excesses and how the tax is calculated.
Currently, the maximum annual allowance limit for each individual in a tax year is £40,000 and this is tapered down to a minimum of £10,000 if income thresholds are exceeded.
The Chancellor announced that HM Treasury has reviewed the tapered annual allowance and its impact on the NHS, as well as on public service delivery more widely. He further stated that to support the delivery of public services, particularly in the NHS, the two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the ‘threshold income’ will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an ‘adjusted income’ above £240,000.
This will remove the vast majority of GPs from the potential for a tapered annual allowance limit, therefore helping to reduce potential excess charges in years of high pension input growth.
Many GPs had cut their sessional commitment in order ensure their threshold income fell below the £110,000 level to protect their full annual allowance. It will be interesting to see how many GPs that took this action revert to their previous higher levels of sessions in 2020/21 and beyond.
For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with a total income (including pension accrual) over £300,000.
There was a minor, and expected, announcement on lifetime allowance for pensions. The lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.
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The information in this blog should not be regarded as financial advice. This is based on our understanding in March 2020. Laws and tax rules may change in the future.