There have been a host of changes to the taxation of pension contributions which could affect the amount of tax you pay. Without careful management, you could breach new pensions savings limits and be liable for harsh tax penalties.
There is a maximum amount which you can contribute to your pension each year while still receiving tax relief. This annual allowance now stands at £40,000 and can catch out many doctors because of the way in which your contributions are calculated.
The HMRC calculations for pension contributions are based on the deemed growth of the pension in the year and bear little resemblance to the amount you have actually paid into your pot. And it is all too easy to breach the allowance because of increases in benefits during the year such as a pay rises or clinical excellence award which will count towards your input.
To make matters worse, there is now a ‘tapered annual allowance’ which will affect anyone with income more than £150,000 gross from all sources. For individuals earning over this amount, the allowance will be reduced by £1 for every £2 of income down to a minimum of just £10,000 per year.
Any excess savings above the annual or tapered allowance will generate a charge at your highest marginal rate of income tax so potentially up to 45 per cent.
Are you sure of where you stand? For more information, please contact one of our advisers on 020 7252 5765.
Tax treatment varies according to individual circumstances and is subject to change.