Lifetime Allowance tax take up 1000%

A freedom of information request by annuity provider Retirement Advantage has revealed that the tax take from the Lifetime Allowance has increased by 1000% since its inception.  The government collected over £100 million in tax through the Lifetime Allowance Charge in 2016/17, compared with less than £10 million in 2006/07.

There is an obvious link between the amount of tax taken and the level of the Lifetime Allowance.  The Allowance was £1.5 million when it was introduced on 6 April 2006 then increased incrementally £1.8 million by 6 April 2010.  However, over subsequent years it was steadily reduced, down to just £1 million in 2016/17.  This year saw the first increase in the Lifetime Allowance for nine years to £1,030,000 and it is due to increase in line with inflation from now on. 

Standard Lifetime Allowance

2006/07

£1,500,000

2007/08

£1,600,000

2008/09

£1,650,000

2009/10

£1,750,000

2010/11

£1,800,000

2011/12

£1,800,000

2012/13

£1,500,000

2013/14

£1,500,000

2014/15

£1,250,000

2015/16

£1,250,000

2016/17

£1,000,000

2017/18

£1,000,000

2018/19

£1,030,000

In consequence, a doctor taking their pension today is far more likely to bump up against the Lifetime Allowance than one retiring just a few years ago.  In 2011, a doctor could retire from the NHS Pension on a pension of up to £78,260 a year without triggering a Lifetime Allowance Charge.  Now, the maximum pension amount that falls within the Lifetime Allowance is £44,782 a year (figures based on 1995 Scheme benefits).  With the lower limit, unsurprisingly more people are paying more tax.

In the event that a doctor exceeds the Lifetime Allowance on taking their NHS pension benefits, NHS Pension pays the Lifetime Allowance Charge (25% of the excess) to HMRC then reclaims this by permanently reducing the annual pension they pay out to the doctor.  The number of people paying a 25% tax charge on income has increased dramatically from just 160 in the 2006/07 tax year to 1,830 in the 2016/17 (this includes all pensioners, not just NHS Scheme members). 

We suggest that those who are at or near the Lifetime Allowance seek advice on retirement planning.  Please contact Richard Higgs on 0117 966 5699 or richard.higgs@wealthwestmedical.co.uk.

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