news Spring 2021
+ Budget 2021: More doctors will trigger pension tax charge The Chancellor’s Budget announcement that the lifetime allowance (LTA) will be frozen at the current rate until 2026 means that more doctors will be caught in this punitive tax net. The lifetime limit on pension tax relief stands at £1,073,100. If you exceed this LTA you face a tax charge of 25 per cent if you take the money out as regular income, or 55 per cent if you take it out as a lump sum. Freezing this rate for the next five years will bring many more doctors into the realm of paying tax on their pension savings. The key concern is that more of the workforce will be forced to reduce sessions or retire early in order to avoid generating tax charges. The Treasury said the move would raise £990m by 2026 because savers will stop contributing to pensions from their incomes and thus not claim tax relief, and more people will exceed the LTA and pay further tax. Medical Family Finance News Spring 2021
Many commentators assume this is seen as a means of recovering money spent during the pandemic without raising taxes for the majority of people. For doctors, however, tied into making pension contributions over several decades, the result will be particularly detrimental. Three years ago, the government said the LTA would rise each year to keep pace with inflation – as set by CPI (Consumer Price Index). The LTA was only due to increase by 0.5 per cent this tax year (to £1,078,000) because of the low inflation figures set in September. The freeze will therefore only have a small impact this year. More damage will be caused by the lack of future increases. As an example, if CPI inflation returned to around 2.5 per cent, the LTA would have risen to just under £1.2m by 2025/26 meaning fewer doctors reaching that figure.