Budget  

Budget 2020: AA taper thresholds hiked by £90k

Budget 2020: AA taper thresholds hiked by £90k

Chancellor of the exchequer Rishi Sunak has unveiled plans to raise the point at which tapering of the annual allowance kicks in by £90,000, to £200,000 as of next month.

This move means anyone with income under £200,000 will not be affected by the controversial tapered annual allowance

The chancellor said this will take 98 per cent of consultants and 96 per cent of GPs out of the taper altogether.

Mr Sunak also announced measures to reduce the minimum annual allowance to £4,000 for those with incomes above £300,000.

Under current rules, the taper gradually reduces the annual 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.

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

The taper applies to individuals who have a threshold income – the gross income minus any tax relievable contributions such as pension contributions – above £110,000.

But the chancellor stopped short of announcing an end to the taper altogether, something which many across the industry and the British Medical Association (BMA) have been calling for.

The taper issue has resulted in senior clinicians either retiring early, leaving the NHS Pension Scheme or turning down overtime to avoid tax bills.

Some in the industry had previously said that while moving the threshold would help, it would not go far enough to address the core issue.

Ian Macvie, pensions and retirement planning technical manager at Wesleyan, said ahead of the Budget: “Simply raising the taper threshold doesn’t go far enough in our view. The fundamental issue is the taper itself as it is unfair, not fit for purpose, and should be scrapped immediately.  

“Until then, work-arounds that only change its parameters are unsatisfactory solutions, and we’ll continue to see cases of front-line clinical staff limiting their hours or leaving the NHS to protect their own financial health.”

Tom McPhail, head of policy at Hargreaves Lansdown, also previously warned moving the threshold could result in certain individuals being able to manipulate their income to bypass the tax rules.

People such as business owners could suppress their income below £150,000 and take additional benefits in kind such as top-up pension contributions from the business. 

amy.austin@ft.com

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