Update on Higher Rate and Additional Rate Pension Tax Relief
In early July 2017 David Gauke, the Secretary of State for Work and Pensions, brought the news, likely welcome for many Bristol doctors, that pension tax relief is not set to change any time soon.
Due to the cost to the government of providing higher and additional rate pension tax relief, and the perception that the current system favours higher earners, there had been speculation the system would change. However, Gauke confirmed an overhaul is off the table due to there being no particular consensus on the changes and the task being ‘somewhat daunting’. This means doctors will continue to enjoy higher and additional rate tax relief on their pension contributions.
Most doctors will be contributing to the NHS Pension Scheme, membership of which provides a guaranteed income in retirement and the option of a tax-free lump sum on retirement.
Alongside this there is the potential to make personal pension contributions to maximise the available tax relief. There is an Annual Allowance for pension input each tax year, currently set at £40,000. Doctors who have scope within the Annual Allowance can contribute to personal pensions and receive tax relief on the contributions at their marginal rate of income tax, i.e. 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.
Assessing the available Annual Allowance is not straightforward. The amount that counts towards the allowance is not the total of member and employer contributions to the NHS Pension (as might be expected), but the amount by which the value of the NHS Pension benefits are deemed to have increased over the course of the tax year.
As NHS Pension specialists, we are happy to look at this for Bristol doctors on a case by case basis. If you want to maximise your pension tax relief or otherwise explore your options for tax-efficient investment, please contact Richard Higgs CFP FPFS on 0117 966 5699 or email@example.com.