More than 500 doctors have unnecessarily paid £17.7mn in lifetime allowance charges, according to a freedom of information request submitted by Quilter.
The FOI data showed 506 doctors who have retired and paid LTA tax charges could have avoided paying this extra tax if they had filled out a form called Individual Protection 2016 or IP16.
They had a collective total of £71,004,784 which could have been protected under IP16, the FOI found.
At the end of 2021 Quilter believed a large number of doctors had missed out on applying for LTA protection and had paid more than necessary in tax. At the time through an FOI, it emerged that 400 doctors had overpaid LTA charges totalling £11mn.
Since the issue was raised in 2021, 152 doctors have subsequently applied for lifetime allowance protection, but there’s an additional 245 doctors who have since retired with LTA charges that could have been protected since the issue was unearthed.
As a result, the amount of tax potentially able to be reclaimed has increased by £6.7mn.
The new FOI data found that 506 members who have retired and paid LTA tax charges could have benefited from IP16.
Quilter has urged the NHS Business Service Authority to contact all members to explain what they should do to rectify the issue and have the LTA charges refunded.
Protection
LTA protections were introduced, following reductions in the LTA, to help those with pensions already valued above certain limits.
By applying for ‘protection’ an individual is able to protect the value of the benefits built up and, in some cases, future benefits that may accrue, from tax charges.
IP16 is one of the most recent protections, which was available until the LTA was scrapped. This enabled individuals to have a protected LTA of the value of their pension savings at April 5, 2016 if they were more than the standard lifetime allowance, up to a maximum of £1.25mn.
As the LTA tax charge is 25 per cent, the 506 members in the FOI could have collectively saved £17.75mn had they applied for IP16 before retiring, according to Quilter, although the firm pointed out it is possible for the excess over the lifetime allowance to be taken as a lump sum and in that case is charged at 55 per cent.
The impacted members still could retrospectively apply for IP16 to be applied to their pension.
Graham Crossley, NHS pension specialist at Quilter, said this issues shines a light on why the government felt it necessary to recently scrap the lifetime allowance as part of the Budget.
Crossley said: “The complexity of this tax law was catching out numerous medical professionals and landing them with significant tax bills they might have been able to avoid. It was producing artificial behaviours that ultimately was having a damaging impact on our health service.”
Crossley added that Quilter has written to the Department of Health and Social Care (DHSC) to instruct NHBSA to contact members directly and provide factual information, which explains how applying for the protection might impact their overall outcome ultimately resulting in these LTA charges being refunded.
He said: “These members have paid huge lifetime allowance tax charges simply because they failed to fill out a form. Thankfully this is an easy matter of NHSBSA providing factual information to members which they can choose to act on rather than recommending a course of action, which might be deemed financial advice.
“The vast majority of retired doctors who suffered lifetime allowance charges will have found the news at the budget that the tax rules were set to be scrapped as bittersweet as there will be nothing they can do to get back the taxes they paid. However, for some there is still a chance that these unnecessary tax charges can be clawed back. Seeking financial advice to understand your position is critical.”
amy.austin@ft.com
