Pensions Tax Pain Relief: NHS clinicians

Stethoscope on printed graphs 22nd March 2023
What is the Annual Allowance (AA)

The AA is the maximum that can be saved into all of your pension pots in any one tax year before incurring a tax charge. For the current 2022/23 tax year the annual allowance is set at £40,000. Every tax year your annual allowance is compared to your pension input (the increase in capital value of your NHS pension benefits across all of your pension schemes). Any growth in excess of your annual allowance is subject to a tax charge and is taxed at your marginal rate of tax.

 

The Tapered Annual Allowance
For particularly high earners the annual allowance is reduced, or tapered, where an individual has:
  • ‘Threshold Income’ in excess of £200,000 and
  • ‘Adjusted Income’ in excess of £240,000

 

If the conditions for tapering are met, the annual allowance is reduced by £1 for every £2 that the threshold income exceeds £240,000, down to a minimum of £4,000 if the threshold income exceeds £312,000.

 

The Lifetime Allowance

The lifetime allowance is the maximum value of pension funds that an individual can accrue before incurring a significant tax charge. The lifetime allowance has been gradually decreased from £1.8 Million when it was introduced to just £1,073,100 in the current tax year.

 

Key changes announced in the budget

From 6 April 2023, the chancellor has increased the annual allowance from £40,000 to £60,000. For an additional rate taxpayer consistently exceeding £60,000 pension input, this could result in tax savings of £9,000 each year.

 

The adjusted income threshold for annual allowance tapering will rise from £240,000 to £260,000 and the minimum annual allowance will rise from £4,000 to £10,000, again with effect from 6 April 2023.

 

In addition to the boosted annual allowance, the chancellor also announced the lifetime allowance charge would be removed from 6 April 2023 and abolished entirely from April 2024. This means that no one will incur the charge going forwards.

 

If you would like further information about how you will be affected by these changes, please contact either me or your usual Whitings representative.

Disclaimer - All information in this post was correct at time of writing.
Other Blogs