Proposed tax relief measures could solve problems facing the NHS – comment from Tilney

16 January 2020

A press report has appeared today suggesting that ahead of the 11 March Budget the Treasury is drawing up plans to change the income threshold at which relevant earnings, including pension contributions, trigger the tapering of the annual pension allowance. The measure, while aimed at helping doctors and surgeons who are being hit with huge tax bills and being forcing them to work fewer hours, would also benefit other high earnings.

Commenting on this alleged measure, Gary Smith, chartered financial planner at wealth manager Tilney, says:

“This is very interesting indeed, and is not only good for NHS pension scheme members, but many other high earners.

“If my understanding of the mooted change is correct, they are proposing to increase the ‘threshold’ income level from the current £110,000 to £150,000 for all of the UK population, not just members of the NHS pension scheme or those working in the public sector. When assessing if an individual will suffer a tapering of their annual allowance, there are currently two tests, these being:

  • Adjusted Income
  • Threshold Income

“Under the proposal an individual will only suffer a tapering of their annual allowance is above £150k and their threshold income is also above £150k, significantly higher than the current £110k threshold income level.

“So why is this change potentially so significant? Well this change, if confirmed, is certainly very welcome news and will solve part of the problems facing the NHS, whilst increasing the scope of pension funding for many other higher earning individuals. The Adjusted Income figure includes income from all sources, plus any employer pension contributions, meaning that someone earning above £110K could be impacted if their employer contributions are close to, or above £40k per tax-year. However, the threshold income represents income from all sources less any personal contributions made into pensions.

“Let us look at an example of a current GP earning £140,000.

  • The GP earns £140k
  • They are a member of the NHS Pension Scheme and their pension input is £41,500
  • They contribute 14.5% of salary into the pension personally £20,300
  • They have no other income.

“Their adjusted income would be their earnings of £140,000, plus the deemed employer pension contribution, which in this instance would be £21,200 (pension input less personal contributions), resulting in a figure of £161,200.

“Their threshold income would be their earnings of £140,000, less the personal contribution of £21,200, making a figure of £118,800. As this is above £110,000, they would suffer a tapering of their annual allowance.

“They would have a tapered annual allowance of £34,400 and, as the pension input was £41,500 (assuming no carry forward) they would exceed their allowance by £7,100 and incur a tax charge of £2,840 (£7,100 x 40%).

“However, if these proposals were implemented, then their income, less personal contributions, would be below the new £150k threshold income amount. They would not therefore incur any tapering of their Annual Allowance, and so would retain a full allowance of £40k. As their pension input would remain at £41,500, they would still exceed their allowance, but the excess of £1,500 would only be subject to a tax charge of £600, saving this individual £2,240.

“I would very much welcome this change, not just for NHS scheme members, but also for all pension savers who would benefit from this reform.”

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.