Whether you’ve just started paying into a pension or are approaching retirement, by understanding your allowances you give yourself the chance to maximise your potential and minimise your tax.
Both Lifetime Allowance and Annual Allowances have been subject to significant changes in the past few years. It can be difficult to keep track of where you stand so we’ve put together the following summary to keep you up to speed;
Annual Allowance
HRMC let us contribute a total of £40,000 per year (from 6th April 2018 until 5th April 2019) into our pension. This allowance can change if you start taking money out of your pension.
Tapered Annual Allowance is a reduction in the Annual Allowance for those earning over £240,000 on the basis that for every £2 over this figure your annual allowance would reduce by £1, the maximum reduction will be £36,000.
£240,000 sounds like a big number, however HMRC use a term called “adjusted income”, this is essentially all of your income sources (interest from savings, property rental, investment income, benefits in kind) basically what goes onto your Tax Return, in addition to this your NHS Pension needs to be taken into account, the calculation for which means that many Practitioners could face a reduction in their Annual Allowance.
Who needs to be worried? Anyone earning over £200,000 (from all sources of earnings, drawings, dividends, benefits in kind) needs to seek advice quickly.
Unfortunately, due to the complexity of the legislation, there is no simple way to identify who this will affect. Inevitably, there will be some BDA members who could find themselves with a tapered annual allowance without realising it.
Lifetime Allowance
The Lifetime Allowance is the total amount you can contribute into your pension over your lifetime. This is currently £1,073,100.
While this still seems like a lot of money, for many dentists, whether you have high NHS earning or have contributed into both NHS and Private Pensions, this figure is easily exceeded. The calculation for this is based on your projected income from the NHS pension, and not what you have paid in or your lifetime earnings.
The Lifetime Allowance has been subject to regular change in recent times. Lifetime Allowance Protection is designed to help people approaching retirement manage their contributions in line with these changes.
If your pension savings were over £1m in April 2016, you can apply for Individual Protection, which can minimise the tax charges.
The level of protection you can benefit from is specific to individuals and the rules can be complex. To find out whether you can apply, speak to an independent financial adviser.
Of course we will always advocate speaking to your independent financial adviser if you have any questions about your pension contributions.
If you’d like to talk to us about your pension allowances, please call our team today on
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This article is for information purposes only and is not personal advice. It is based on our current understanding of legislation and HMRC guidance which could be subject to amendment. It is correct as at February 2019. You should always seek financial advice. The value of your investment can fall as well as rise and is not guaranteed. You may not get back the full amount invested.