- Posted Tuesday April 24, 2018
The start of a new financial year is always the catalyst for focusing on money matters, and judging by the number of enquiries we received in the first quarter of the year, minds in the primary care sector are currently even more focused on their finances than usual.
The main issue to hand has been the changes to tax relief on GPs' pensions which were introduced from the 16/17 tax year, the impact of which is now beginning to become very clear, especially for higher earners.
From the start of the 2016/17 financial year, the standard annual pensions allowance of £40,000 was reduced on a sliding scale by two pounds for every one pound over £150,000 a year earned, with a minimum £10,000 allowance being reached for earnings over £210,000.
This is, in essence, putting a new tax on some GPs' earnings that they aren't actually getting straight away, on which they will be taxed again when they eventually come to draw it down.
In the past, assets from the pension fund could be used to pay the tax bill but this is no longer the case for the whole cost, meaning that higher earning GPs could be facing more substantial tax bills following the completion of the 2016/17 tax returns. In terms of mitigation, while there are options, there isn't a 'silver bullet' solution available and the most suitable approach will depend on individual circumstances and levels of earnings.
It could, for example, be possible to set up a company through which income from any private sources can be directed and then paid out in dividends as and when required.
Last year's Royal College of GPs survey found that almost four in ten practitioners were planning to retire in the next five years, giving a clear view of the position in which primary care finds itself. Judging by what we've seen, there's a real possibility that the financial implications of the pension tax relief changes will further encourage older practitioners to give serious thought to taking retirement sooner rather than later.
There may also be implications for younger GPs who are currently rising through the ranks, and thus increasing their earnings. They also need to be looking forward through their future careers to see how they can use their lifetime pension allowance, a figure which has fallen significantly over the years, from £1.8m to its current £1 million.
GPs of all ages should be assessing their personal situations as a matter of urgency and taking steps to make sure they're doing as much as possible to mitigate and prepare for any foreseeable financial hit.
Specialist medical accountants at RMT offer medical professionals advice and guidance that is tailored to the unique monetary and legislative environment in which healthcare industry workers live. For more information visit their website.