“I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most…… I do not want any doctor to retire early because of the way pension taxes work.”
The Chancellor, the Rt Hon Jeremy Hunt MP – delivering his Spring Budget to the House of Commons 15 March 2023
In the lead up to the Budget, there had been much speculation that there would be some relaxation of the tax rules regarding pension contributions, but in his Budget speech the Chancellor went further than had been expected.
Although a Budget with an emphasis on stability, and so short of many other headline grabbing announcements, there were also a number of other measures which may be of interest to Healthcare professionals.
Pensions – Annual Allowance
The annual allowance has been frozen at a maximum of £40,000 for a number of years but from 6 April 2023 that increases to £60,000.
For defined benefit schemes, such as NHS pensions, this is the maximum annual growth in pension benefits before a pensions savings tax charge is incurred, unless there are any unused allowances from the previous three years.
The point at which the £40,000 allowance starts to be reduced because of income levels has also been increased. Currently, where adjusted income exceeds £240,000 this £40,000 would be tapered down, to a minimum of £4,000.
From 6 April 2023, the £60,000 allowance will not be subject to any taper until the adjusted income exceeds £260,000, and the minimum it can be reduced to will be £10,000.
In his Budget speech, the Chancellor predicted that together these changes will prevent over 80% of NHS doctors from receiving a tax charge.
Not affecting the NHS pension, but for those already in receipt of a private pension and so limited to contributing £4,000 back into pension, from 6 April 2023 this too will increase to £10,000.
Pensions – Lifetime Allowance
This is the maximum amount of pension savings an individual could build up over their lifetime without having to pay an additional charge. The charge would be at 55% if the money was taken as a lump sum or at 25%, in addition to the income tax rate, if taken out gradually. The Lifetime Allowance (LTA) currently stands at £1,073,100.
The abolishment of the LTA will take place in April 2024. However, withdrawals more than the LTA next year (2023/24) will not suffer a tax charge – effectively the LTA rate will be set to 0%.
When the Lifetime Allowance was introduced in 2006, and each time it has been reduced, protections were offered to safeguard taxpayers whose pensions already exceeded the allowances, which often meant that no further pension contributions could be made.
On the face of it, there will be no need for these protections to remain in place. However, it is important to note that the if a member does have protection in place and removes it, it will then mean that they are subject to a maximum tax-free lump sum of 25% of the current LTA limit of £1,073,100, which would be £268,275.
Childcare
From April 2024 all working parents of 2 year-olds will be able to access 15 hours of free childcare per week.
From September 2024 this will be extended to include working parents of those aged between 9 months and 3 years, increasing to 30 hours per week from September 2025.
Capital Gains Tax- Separation and Divorce
As previously proposed, there was confirmation that there would be an increase in the time that divorcing couples will have in order to transfer assets between them free of Capital Gains Tax (CGT).
Currently, such transfers have to be made in the tax year of separation in order to continue to benefit from the spouse exemption for CGT. For disposals on or after 6 April 2023, separating and divorcing couples will have 3 years after the year in which they cease to live together in which to make a transfers of assets between them, and unlimited time if the assets are subject to a formal divorce agreement.
There will also be more favourable tax treatments available regarding the family home, whether this is transferred to the ex-spouse but with a right to share in future sale proceeds, or if an interest in the property is retained.
And as a reminder of previous announcements …
- From 6 April 2023, the rate at which the 45% highest rate of income tax will be charged reduces from £150,000 to £125,140.
- The tax-free dividend allowance will be reduced to £1,000 from 6 April 2023, and then to £500 a year later.
- Tax free allowance for capital gains will reduce on 6 April 2023 from £12,300 to 6,000, and again to 3,000 a year later. The CGT proceeds reporting limit will be set at £50,000 from April 2023. This is the level at which gains need to be reported on the tax return, even if there is no tax to pay. It was previously four times the annual exempt amount.
- Corporation Tax to rise from 19% to 25% from 1 April 2023 for profits above £250,000. Where profits exceed £50,000 but are below £250,000, the effective marginal rate in 26.5%.
- National Insurance thresholds are frozen, and the Employment Allowance will be kept at £5,000, although this is not available if more than 50% of income is from an NHS source.
- Stamp Duty Land Tax cuts announced in the Mini-Budget Growth Plan will now be time-limited, ending on 31 March 2025
If you have any questions on anything Budget related, please get in touch with your normal BHP contact.
