Exceeding your pension annual allowance: don’t miss the NHS Scheme Pays deadline

High earning dental professionals may be worried about exceeding their pension annual allowance or being affected by the tapered allowance. If you want the NHS scheme to pay the tax charge, it is vital that you don’t forget to meet the 31 July deadline, Dental and Medical Financial Services says.

Pension allowances

The annual pension saving allowance for taxpayers is set by the government. Currently it is £40,000 per year. However, with the introduction of the tapered annual allowance in 2016, if your taxable income and pension savings (minus relevant tax reliefs) exceed the adjusted income limit of £150,000 per year, your pension allowance will be reduced.

Worst case, if you have an adjusted income of more than £210,000, you will only be eligible for a £10,000 pension allowance. If you still pay £40,000 into your pension(s) that year, you would be liable to pay tax on £30,000 of savings.

If you are unsure if you are reaching your annual allowance, you will need to review pension statements, taking into account employer contributions and your income, and also understand your available tax reliefs. It can be a complex task and one that you might prefer to get help for from a professional financial adviser.

Paying your tax charges

There are ways to reduce your burden, but if you do become eligible for a tax charge one option for paying this is by enrolling in the NHS Scheme Pays, through the mandatory or voluntary option.

In order to be eligible under NHS Scheme Pays for the 2018/18 tax year charge, you must complete the Scheme Pays Election Notice (SPE2) and it be received by the scheme by 31 July 2019.

It is important to note that if your liability for tax charges on pension savings covers more than one pension, one of those being a non-NHS scheme, you will not be able to get the NHS to pay the entire annual charge.

How can you reduce your tax burden?

The tapered annual allowance is one of the biggest worries for dentists, and with HMRC getting tough on those who do not comply, even if they are unaware of their liability, it really is imperative to be on top of your finances.

If you think that your earnings might exceed £150,000, then here are some things to think about:

  • Keep on top of your pension contributions – check your pension statements or request a copy of your Annual Allowance Pension Savings Statement from your pension provider(s). This will help your financial adviser calculate your contributions
  • Check what benefits you can ‘carry forward’ – remember that you might have unused allowance from the last three years that you could carry forward and reduce your taxable amount
  • Don’t forget your tax benefits – as a self-employed dental professional, there are a number of tax reliefs that you can claim in order to keep your income under the tapered annual allowance threshold. Make sure you know what these are
  • Take advice from a professional – if numbers and paperwork are not your forte, speak to a financial adviser who can help you identify if you will be caught out be tapered annual allowance charges. You should also talk to your accountant to see how you can reduce the impact of any tax charges.

If you need help from a financial adviser to understand tapered annual allowance, and to manage your pension contributions and tax burden, speak to Dental and Medical Financial Services. Our experienced team can help take away the stress of keeping on top of your finances.

Dental and Medical Financial Services has been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.

For more information call 01403 780 770.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.

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