16 Nov Medical Profession – Pension Tax Trap
It’s that time of year again when we come round to preparing tax returns. We understand how complicated they can get.
One of our specialisms here at Egan Roberts is acting for clients in the medical profession.
Tax returns can be complicated enough to put together with a combination of practice or NHS income and then private income and looking at ways to minimise your liability. One way to reduce your liability used to be pension contributions, but over the years with the introduction of the lifetime allowance and limits to annual contributions this has become less of a tax planning opportunity.
How does my pension affect my tax?
Indeed it is now quite likely that your pension may be the cause of additional tax liabilities. For older members of the medical profession with a long period of service, you need to carefully monitor the value of your pension in comparison with the lifetime allowance, which presently stands at £1,030,000, increasing to £1,055,000 for 2019/20.
Where the whole of a lifetime allowance has been used by crystallisation events, the lifetime allowance charge will be applied at the rate of 25% on income (the income itself then being also taxed at your marginal income tax rate). For excess amounts taken as lump sums, the marginal rate is 55%.
In addition to the above tax trap, you also need to watch that your deemed pension contributions don’t exceed the Standard Annual Allowance which is £40,000 per annum. It is important that you pass to your accountant your NHS Annual Allowance Pension Savings Statement which will tell you your pension input amount for the year.
However, you should be aware that if you do exceed the Standard Annual Allowance, you may be saved from additional tax by the use of Carry Forward, where excess contributions can be offset against unused allowance carried forward from the previous three years.
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