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Calculating Tapered Pension Annual Allowance As a Medical Professional

Tapered Pension Allowance

Author: Shona Humphreys (CTA), Senior Tax Advisor

Shona Humprheys

This blog is both a reminder to medics on our books that we need their pension statements information, plus a heads up to those in medical professions. It is worth making sure that you maximise your pension contributions and carry forward any unused annual allowance from the previous three years where the taper applies. It is also wise to have a handle on your pension pot and what it is worth year to year. At LHP we work with medical professionals, managing their personal tax including pension allowance calculations.

Annual Pension Statement

Some health professionals working for the NHS will soon be issued an annual pension statement. This statement shows growth in NHS pension benefits over the previous tax year (the pension input period).

Usually, the statement is only issued if the pension growth is more than the standard annual allowance, currently £40,000. However, all medical, dental, and ophthalmic practitioners should be issued an annual statement regardless. Practitioners who have not received a statement by December should contact NHS Pensions.

The standard annual allowance per person is £40,000, but in certain circumstances it is tapered. Tapering can reduce the annual allowance down to £4,000 and happens when an individual’s threshold income exceeds £200,000 and adjusted income exceeds £240,000.

Broadly, threshold income is an individual’s net income (income chargeable to tax before personal allowances) excluding pension contributions, and adjusted income is net income including pension contributions.

Handling Potential Pension Tax Charges

Pension contributions exceeding the annual allowance in a tax year will be subject to a tax charge at the individual’s marginal rate of tax.

If NHS Pensions have not issued a statement, a pension tax charge might still apply, as the tapered annual allowance isn’t considered, neither is an individual’s pension scheme(s) operating outside of the NHS. A review of an individual’s total income position and pension contributions from all sources is needed to determine if a pension tax charge applies.

Until 5 April 2021, the threshold and adjusted income amounts were lower; £110,000 and £150,000 respectively, so those who faced a pension annual allowance tax charge in previous years may not from 6 April 2021. However, if you are in doubt about your position, contact NHS Pensions for your annual statement and discuss the matter with your tax advisor.

Talk to Us

It is worth making sure that you maximise your pension contributions and carry forward any unused annual allowance from the previous three years where the taper applies. It is also wise to have a handle on your pension pot and what it is worth year to year.

At LHP we work with a large number of medical professionals, managing their personal tax including pension allowance calculations. For an informal chat with our tax specialists, drop us a message on Let’s Talk and we will get right back to you. We have offices in Carmarthen. Cross Hands near Swansea, Haverfordwest, Tenby and Lampeter – but can also work via Zoom from any location.

References:

https://www.nhsbsa.nhs.uk/sites/default/files/2019-11/Pensions%20Saving%20Statement%20Guide%20%28V2%29%2010.2019.pdf

https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance

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