Wealthy clients, such as doctors and consultants, must get their tax affairs sorted before the government starts knocking at their door, a financial planning boss has warned.
Mark Incledon, chief executive of Bowmore Financial Planning, said it is clear the government is on the lookout for extra tax revenue to make up for Covid-19 public spending over the past year.
He warned the bill may end up being passed to the higher earners in the form of tax cuts and freezes.
As of March 3, the Office for Budget Responsibility said borrowing would be £355bn for the current financial year (April 2020 to April 2021), before falling back to £234bn over the next tax year. This is the highest debt outside of wartime.
Broken down, this includes a figure of over £100bn being spent on job support, such as the furlough scheme, which had originally been set to end on March 31 but was extended in the March Budget.
Incledon recommended that all high-earners should be looking to use all tax breaks and saving options available to them as soon as possible, at the end of this tax year.
This should include making full use of the Isa allowance, currently £20,000, to save paying unnecessary, additional tax.
For example, he spoke of the extra pension allowances, which had been introduced in previous parliaments to ease issues faced by highly paid members of the NHS, such as doctors and consultants.
He said: "These benefit all high earners, however. As high earners in the private sector often see quite high volatility in their earnings, they ought to be saving as much as they can whenever they can.”
In the recent Budget, the Chancellor announced the freezing of the Lifetime Allowance at £1,073,100 until 2026.
Incledon said: "This means, when inflation is considered, there will be a real terms cut in the total amount of money an individual is able to access efficiently from their pension plan."
- Those earning up to £240,000 should seek to plan appropriately to make sure they are using both the annual allowance and LTA to full effect.
- Individuals earning more than £240,000 need to be aware that their annual allowance is still tapered by £1 for every £2 they earn over that figure.
- This allowance can fall down to limit of just £4,000.
- The very highest earners need to be aware of this change. Any contributions they make to their pension beyond £4,000 will be taxable.
When the chancellor announced the freezing of the LTA, the British Medical Association blasted the decision.
In a statement, the BMA called it a tax that will disproportionally affect doctors, and warned this could see a brain drain of talent as higher-paid NHS workers leave the NHS or reduce their hours to avoid being hit by the LTA freeze.
Dr Vishal Sharma, chairperson of the BMA's pensions committee, said: "Freezing the pension lifetime allowance is a bad decision and is creating the perfect storm.
"It is forcing an exhausted workforce – many of which are already planning to work fewer hours – to make some very tough decisions such as working fewer hours or leaving the NHS long before they would naturally retire.
"If they don’t, they will face huge pension taxation bills because the NHS pension scheme is not flexible enough to allow doctors to vary and manage their contributions. They simply cannot keep working and face these huge pension tax bills as a result.”