As a tax taper begins to bite, GPs are being offered a helping hand with tax changes.

GP pensions have never been simple. Practice managers and GPs are faced with increasingly complex processes to ensure they make the most of pension pots and avoid major tax and pension pitfalls.
These pressures have only increased in the wake of COVID-19.

Many GP practices are running with reduced administrative capacity due to funding, social distancing, and illness. A significant number of GPs are working more hours, and there has been a noticeable rise in the number of GPs reconsidering or changing retirement plans. As Zeeshan Hussain, Director of FK Medical says, “It’s a perfect storm; we need more planning and strategic thinking about GP finances at the very moment when practice managers and GPs are under huge strain with the pandemic”.

However, Zeeshan is keen to offer practical solutions, “There are a lot of issues at the moment, but right now GPs should be aware of the changes to tax charges for the 2019/2020 tax year through the Scheme Pays initiative”.

SCHEME PAYS INITIATIVE 

Scheme Pays allows members of the NHS Pension Scheme to ask the Scheme to pay an ‘annual allowance charge’ directly to HMRC. The members then see a reduction in their pension benefits once they have retired. However, in November 2019 NHS announced they will make a contractually binding commitment to fully compensate in retirement a GP who elects to use the Scheme pays election (only available for charges arising in 2019/20).

This means that GPs can access their pension pot to pay their tax bill, and the NHS will then top up their fund so their pension will not be reduced. “This is a great step for GPs, but the payment is not automatic, GPs must complete the application form by 31st July 2021, and we have a number of clients who would benefit from doing this.”

For further information and a copy of the application form click here

ANNUAL ALLOWANCES

There was a further positive development regarding limits for a tapering of the Annual Allowance in April of this year, although very high-earning GPs could be adversely affected. Darren Fletcher, Director of FK Medical explains, “The Annual Allowance is the maximum amount that GPs can put towards their pension and still get tax relief. It dropped to £40,000 in 2014, and it’s now subject to tapering.”

Previously the taper kicked in if you had earnings of over £110,000 and an adjusted income of over £150,000. These limits have now been extended by £90,000 meaning the majority of GPs will benefit (although this does not mean GPs will no longer be subject to pension tax). However, Darren sounds a note of caution. He says, “If your earnings reach £210,000 you will be significantly impacted by the taper and you will be hit with the maximum reduction of £30,000 to your Annual Allowance, meaning that you will only have a tax-free allowance of £10,000.”

All of these changes highlight the ongoing importance of GPs having a precise understanding of their income and any tax implications it may have for their pensions. The complex relationship between GPs, pensions, and tax means that making a mistake or failing to take advantage of allowances can cost them dear.

For further information click here

For practical advice and support, please contact Darren or Zeeshan at FK Medical.

KEY DATES FOR GPS
  • 1 April 2021 Start of NHS 2021/22 NHS Pension Scheme year
  • 31 July 2021 Deadline for 2019/20 NHS Pension Scheme year’s Scheme Pays election

Disclaimer: GPs should seek independent financial advice on pensions and pension contributions we can only advise on the tax impact of pensions and pension contributions.