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Independents' Day

GPs could face huge tax bill as inflation pushes pension pots over annual limits

Tax bills for high-earning GPs could be driven even higher as a result of inflation figures due this month which could see pension pots grow at a time when planned ‘tapering’ down of the annual tax allowance begins to bite.

GPs with large pension pots who are still working close to full-time in a high earning practice could see the majority of their pension growth taxed when they settle their tax bill early next year.

Changes to the annual allowance on pension contributions that took effect in April 2016 mean that GPs with a gross income in excess of £150,000 from all sources, including pension growth, have their £40,000 allowance 'tapered' down.

GPs should have been planning for this to bite in 2018 but accountants are now warning that current inflation, based on September’s Consumer Price Index, is likely to be at least double the previous year's.

While this means GP pension growth will be greater, it will also see more high earners pushed above the £150,000 income threshold and see their pensionable annual allowance reduced incrementally leaving them liable for income tax on contributions above this.

For anyone with an income in excess of £210,000 the allowance tapers to a minimum of £10,000.

Accountants said this would be a ‘real killer’ for the long-serving, high earning GPs with a significant pension pot already built up, but said a ‘significant proportion’ of GPs would see some impact.

Bob Senior, medical services lead at accountancy firm RSMUK, told Pulse: ‘The £150,000 [annual allowance] is based upon income from all sources: GP, part-time gardener, buy-to-let.

‘So it’s gross income from all sources before any pensions deductions, it also includes the growth in the pension over and above their contributions.’

‘A significant proportion of GPs are breaching that £150k, particularly towards the back-end of their careers when they’ve got quite big pension pots built up.’

CPI in September 2016 was 1% but at the most recent value this year, in July, it stood at 2.6%.

Mr Senior told Pulse: 'I would not be surprised to see it coming in a bit below the 2.6% in September, 2% is what was expected but it will be clear within a couple of weeks.'

This faster growth in their pension would be a boost for most GPs, as their income or total pension pot isn’t significantly big to reach allowance limits.

But he added: ‘There’s a significant proportion who are in the back end of their career and their pension is already quite significant, where an extra 1-1.5% on that, all of a sudden it’s quite a big number.

‘And where it’s a real killer it’s because of the gross income, they’re losing some of the allowance [through tapering] and they’re caught from both ends.’

Though he didn’t want to speculate on actual numbers that might be affected, Mr Senior said there are high-earning practices where the partners’ annual income is above £210,000 and would see the maximum tapering reduction.

In those cases the growth in their pension for annual allowance purposes ‘could easily be £65,000' according to Mr Senior and assuming they have no unused tax relief to bring forward this would amount to '£55,000 of taxable earnings above the tapered allowance.’

He said: ‘These bills can be big, and if it’s been brought about by a reduction in the annual allowance then the pension agency won’t help.’

But GP pension leads at the BMA told Pulse that despite this year’s impact tapering remains ‘minor sport’ compared to the overall impact of lifetime and annual pension contribution limits on the profession.

Dr David Bailey is pension lead for the GP Committee and he told Pulse: ‘The tapering only applies if you’re on more than £150,000 a year, which is certainly the significant minority of GPs if you look at the average taxable income for GPs across the UK.

‘But yes, it will be an issue for those small numbers of people.'

He said those GPs would want to think very carefully about staying in the NHS pension scheme but added: 'The bigger issue is the annual allowance as it stands, and the lifetime allowance for doctors. That’s a much bigger issue than the relatively minor sport of GPs earning over £150k.'

Readers' comments (15)

  • Who's earning 150K and above? Only CCG or LMC GP members probably as average earnings in our area are from £29k to 140K and although this does not give a true picture certainly the top end belongs to Practice with above member GPs.Welcome to the Southeast.

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  • Poor GP's.Pehaps we should have a whip round for them!?

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  • Remember that your pension annual accrual is counted towards this 150k and this is before pension contributions made, so taxable income of 90k likely to attract a charge if you are already at LTA, just another way of taxing us into submission

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  • doctordog.

    This has nothing to do with high earners .
    Normal earners, if their length of service is long enough, may fall into this trap.
    The previous chancellor reduced the lifetime allowance, which must have contributed to early retirements and reduction in the workforce.

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  • Healthy Cynic

    If you are at the tail end of your career the pension scheme starts to look pretty woeful. You might get taxed each year on your contributions, taxed on your lifetime allowance when you take pension, and taxed again on your pension itself.

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  • Bang on healthy cynic, those in the last 3rd of their careers will start getting increasing tax bills and the pension scheme does not look attractive.Remember as a non funded scheme as those who pay the most into it withdraw.the scheme will go into deficit, as it does,the government will attack it as non sustainable and withdraw/curtail its benefits, ala the private sector.You have been warned.

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  • Bob Hodges

    It's actually quite possible to earn £150,000 doing just clinical work as a GP.

    You end up doing A LOT of work mind.

    Thanks God that some GPs are still willing to work full time AND do Out of Hours. The system would collapse otherwise.

    Which brings me to my point........the easiest way to increase the the number of WTE GPs (rather than recruiting a mythical 5000 extra new GPs) is to NOT penalise those that work full time.

    This country is obsessed with taxing income (making it impossible to become deathly through work alone) and oblivious to the possibility of taxing assets and wealth (much of which was inherited rather than earned).

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  • In my opinion , some of the terminology in this article is misleading. Check out GOV.UK ; An individual with a Threshold Income of £ 110,000 or less for a tax year - is not subject to the tapered annual charge regardless of the level of their adjusted income for that year . That means that anyone with a threshold income of over £ 110,000 MAY be subject to the annual tax charge .The test is called the Adjusted Income. Add in the increased value of ones pension pot , minus the usual start of year adjustment. If that increase of pension revaluation is more than £ 40,000 - onto of a threshold income of £ 110,000 - it will add up to £ 150,000 and will trigger the annual allowance tax charge. So in my opinion , one possible plan for avoiding this latest pension tax problem - is to keep Threshold income below £ 110,000 . That would avoid the problem of this unfair Annual Allowance pension tax charge irrespective of pension pot growth in that tax year.

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  • Such an easy target politically for the treasury to claw in more taxes. The 150k annual allowance will surely decrease to 100k

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  • I'm 50 working in an average practice where we have taken on extra docs over the last 10 years, rather than pursue high earnings. Despite this, having bought a few extra years in my youth, I'm already at the point where I've had to leave the pension scheme 15 years early (after the usual 6 months battle with Crapita to complete the paperwork).
    Lots of my generation are in this position, without having been high earners - just hard workers. The Ponzi pension scheme is going to miss my contributions of around £30K a year, which were paying the pensions of people who have already retired. The scheme looks good for those nearing retirement as their benefits were protected, and good for those just starting who will work until they are 70, but has gone toxic for those in mid 40's early 50's.
    There is little incentive to keep us working beyond 55, in fact capped pension, punitive taxes, toxic indemnity costs, appraisal bandwagon etc make it an easy choice to quit while still at the top of our game.

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  • Spot on copernicus.

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  • Unless you are in the stratosphere there is no point. Tax between 100-123 is 60%, pension tax traps after that The whole tax system is against people working harder.

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  • The previous few comments are spot on. I'm 50 average earning practice and have to dip in and out of the scheme. In reality I'm a fool still working full time as I'm taxed st 60%+ because of the pension changes and the only way to avoid / reduce that is to reduce sessions. Everyone who is working full time now and not affected yet is probably relatively new to GP and understanably has more important things to worry about. However, you'll find out sooner than you think that vitriolics about 'high earners' are misinformed. Don't worry, the system will stuff you royally soon! Look into the details of your future pension and you'll cry.

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  • Designed to destabilise and privatise. JM hosp cons

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