TaxNov 25 2019

NHS to extend tax policy to GPs and dentists

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NHS to extend tax policy to GPs and dentists

The NHS is looking to extend a temporary fix for pension tax issues to GPs and dentists, who currently aren't covered by the government's pledge to cover any bills arising this year.

Last week the government said it would cover the tax bills of members of the NHS Pension Scheme in frontline clinical roles in England in an attempt to fix the crisis surrounding the scheme.

These measures only cover the 2019/20 financial year and currently don't apply to GPs and dentists.

However, in the frequently asked questions about the temporary scheme, the NHS said it is looking to expand the fix to both GPs and dentists.

The NHS stated: “We intend that the proposals will apply to General Practitioners and dentists, although as the majority of GPs and dentists are members of the NHS pension scheme not as NHS employees but in virtue of holding contracts for the supply of NHS services, we will need to work through the detailed implementation mechanism with GPs and dentists, and their representative bodies.”

Claire Trott, chartered financial planner and head of pensions strategy at St James’s Place, said: “This is clearly a positive short term measure for those that fear they may be subject to a tax charge on their pensions for the work they are currently undertaking.

"That fear will have resulted in some not undertaking work that they may really want or need to do in order to maintain the standards of the NHS.”

But Ms Trott said although the fix was welcomed it was not a long term solution and didn't address other industries which were also affected by the tapered annual allowance such as teachers and other public sector workers.

It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds, most likely because of the taper on the annual allowance.

Introduced in 2016, the tapered annual allowance gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.

The taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.

FTAdviser reported in August that HM Treasury will be reviewing the impact of the tapered annual allowance after doctors were campaigning to scrap it.

Ms Trott said: “What we really need is a long term solution and not just for the NHS pension scheme but for all those impacted by the tapered annual allowance. It is currently unworkable for all those with even the slightest of variation in their salary. 

“This is because in order to make any decisions now about your pension you need to be completely certain of your income throughout the whole of the tax year, which isn’t possible if you are receiving variable income from any source, including rental and dividends. 

“Planning is virtually impossible with the current tapered annual allowance process and calculation and the whole process of testing tax relievable savings needs to be reconsidered.”

Rachael Hall, head of medical services at Sandringham Medical Financial Planning, agreed more needed to be done.

Ms Hall said: “As an interim measure, this news will be warmly received by many doctors who can now return to work, opt back into the pension scheme and receive the benefit of full pension accrual without worrying about incurring large tax liabilities, which would later accumulate as a debt throughout their working careers. 

“Whilst I am pleased that this scheme will be available for all active clinicians and practitioners, including nurses and AHPs, it’s a shame that non-clinical roles have been disregarded, which is divisive, and I would urge the government to reconsider its position.

“Yet again, the government are kicking the can down the road and we need to see some robust actions implemented immediately, which would be more effective if they simply ended the tapering of the annual allowance.”

Ricky Chan, director and chartered financial planner at IFS Wealth & Pensions, said: "It does appear that GPs, dentists and non-clinical staff are not covered by the NHS employer paying for their pension tax bill.

"Hence this creates some complications for advisers and clients alike as there could be some misunderstanding, leading to poor advice or decisions made.

"This is clearly not sustainable as a long-term solution nor is it fair to the those who are ineligible. Although qualifying clinicians have the special treatment, it means that everyone else with high income would still benefit from seeking financial advice in relation to their tapered annual allowance."

amy.austin@ft.com

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