TaxJul 3 2019

Tax treatment success is 50:50

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Tax treatment success is 50:50
ByMoira Warner

The first half of 2019 has seen a good deal of press coverage about the impact the tapered annual allowance is having on doctors.

Views on whether doctors should receive special tax treatment continue to vary. We are of the opinion that the tapered AA should be abandoned altogether. 

There are cleaner and clearer ways of restricting pensions tax relief for higher earners than this complex piece of legislation. 

But calls to do away with this unpopular and confusing limit have so far fallen on deaf ears.

Instead, Chancellor Philip Hammond prefers to look at the introduction of greater flexibility to the NHS pension scheme to solve the current doctors’ crisis.

On June 3 the government announced what it proposes this greater flexibility should look like.

It intends to consult on a “pay half to get half” option known as a 50:50 plan.

Members will pay half the standard contribution rate and, in exchange, will accrue benefits at half the rate.  

While any flexibility that will help ease the unwanted consequences of the current situation is welcome, 50:50 is no miracle cure.

Key Points

  • On June 3 the government announced what greater flexibility around the tapered annual allowance should look like.
  • The government intends to consult on a “pay half to get half” option known as a 50:50 plan.
  • Careful analysis will be needed.

Firstly, it will require doctors to be able to proactively model the impacts of both standard and 50:50 benefits membership in advance – something that may not always be realistically possible. 

Secondly, because pension contributions are excluded from the definition of threshold income, a 50 per cent contribution may have the perverse effect of increasing threshold income, with the result that the outcome of this option may not always be as compelling as doctors think.

As is always the case with headline proposals there are a range of issues that are not yet clear. These include: