Pensions Tax Year End Planning For Doctors 2016-17
The end of the tax year is rapidly approaching - please find things doctors should be considering in relation to pensions before it is too late.
Individual Protection 2014
There is still time for eligible doctors to protect their lifetime allowance from the drop 3 years ago from £1.5m to £1.25m. Remember there was no requirement for doctors to cease pension contributions from 5th April 2014 so any doctors eligible in 2014 will remain so and can still claim protection before 6th April 2017.
In order to be eligible, a doctor would need to have benefits valued in excess of £1.25m at 5th April 2014 which would mean they are able to protect a personalised lifetime allowance up to £1.5m. Any benefits in excess of this won't be protected but an application can still be made.
Please do get in touch with us for a review to determine whether you should be applying for Individual Protection 2014 before the deadline in April. Remember it can take some time to gather the details of your NHS and other pension schemes in order to calculate eligibilty and therefore get in touch as a matter of urgency.
For those doctors who do not qualify for Individual Protection 2014 they may qualify for Individual or Fixed Protection 2016, but there is no deadline for these applications as long as they remain eligible. That said, it is important for doctors to establish their level of Lifetime Allowance sooner rather than later if they intend relying on these protections, especially Individual Protection 2016 because details will need to be obtained from NHS Pensions which will be easier now rather than in a few years time.
The payment of pension contributions in respect of carry forward relief is an important consideration for higher/additional tax rate paying doctors. Whilst a doctor can only pay and get tax relief on contributions up to the Annual Allowance, which is £40,000 in 2016/17 (if not impacted by the tapered Annual Allowance), provided the doctor has been a member of a pension scheme for the previous 3 years and the full allowance was not used in any of those years, a contribution can be paid in the current year to use up previous years relief under the carry forward rules.
Therefore for 2016-17 doctors should look to firstly use up this year's annual allowance and then go back to 2013-14, 2014-15 and then 2015-16. Remember that 2013-14 was the last year to have an Annual Allowance of £50,000 and so it is likely that there may be a higher amount to carry forward that will be lost if not used this year.
For those doctors impacted by the tapered Annual Allowance, the full tapered allowance needs to be used before carry-forward can be used. Unfortunately it can be very difficult to calculate the exact impact of the taper for GPs and Consultants in particular before the end of the tax year, and therefore doctors may prefer to have carry forward available as a 'safety net' if they have potential issues due to unpredictable pension earnings (GPs) or final salary pension input amounts (consultants).
Remember although doctors going over the Annual Allowance is not ideal, it is not illegal or immoral, it just means the loss of the up front tax relief on the contributions.
Money Purchase Annual Allowance
For those doctors impacted by the Money Purchase Annual Allowance there is no carry-forward available so using up their allowance before the end of the tax year is important. It is even more so this tax year end as their Annual Allowance will drop from £10,000 this tax year to £4,000 next tax year.
The Money Purchase Annual Allowance is more of an issue for doctors who have accessed their pension benefits flexibly (probably from a SIPP or personal pension) for a short - term reason and still want to continue to build funds in the future. However there are ways for doctors to access some pension benefits without creating the restriction of the Money Purchase Annual Allowance. For instance:
- Only accessing some or all of the Pension Commencement Lump Sum
- Drawing money out of a pension using the small pots rules
- Remaining in capped drawdown (as opposed to flexi-access drawdown)
- By using a standard annuity
By using options such as above, doctors will retain access to the full Annual Allowance in the future, should they need it.
In summary we strongly recommend you book a pensions/financial review with us before tax year end in case urgent action is required. Please get in touch with Richard Higgs on 0117 966 5699, email him on email@example.com or contact us through the website at www.wealthwestmedical.co.uk.
If you are a doctor looking for tax efficient investment options then please contact Richard Higgs on 0117 966 5699 or firstname.lastname@example.org or through the website www.wealthwestmedical.co.uk.