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Tax nuggets - GPs' pensions annual allowance

Russell Finn explains how to work out if you are above or below the annual allowance limit.

GPs can obtain tax relief on the payments they make into the NHS Pension Scheme (NHSPS) and other pension plans each year up to a limit.

Under the annual allowance rules that came into force on 6 April 2011, the annual tax-free amount that a person can contribute into pensions, including their own and any employers' payments, was reduced from £255,000 to £50,000.

Contributions defined schemes

So how do GPs, especially those with high earnings, work out whether they were within the £50,000 limit for the 2011/12 tax year? Or if they were above it and possibly facing tax charges on the excess paid?

This is easy to calculate if you are in a defined contribution pension scheme, like the majority of private sector plans, as the contributions are simply the total paid into the scheme in 2011/12.

Benefits defined schemes

The NHSPS and its equivalents for Scotland and Northern Ireland are defined benefit schemes, so the total contributions for each tax year are calculated as the increase in your pension from one year to the next.

To work this out you need a valuation of your 'career pensionable' earnings at the beginning and the end of the tax year. This information is only available from your scheme's administrators.

Are you above the limit?

To work out your opening position you multiply your career pensionable earnings at the end of March 2011 by 1.4 to get your yearly pension, multiply it by 19 to establish its capital value, then multiply it by the Consumer Prices Index percentage increase during 2010/11 to convert it to the same value as the closing position.

Similarly with the closing position you take the value of your career pensionable earnings from March 2012 and multiply by 1.4 again, to get your yearly pension, then multiply it by 19. If the difference between the opening and closing position, together with any private pension contributions, is more than £50,000 then tax will be due on the excess.

  • Russell Finn is a client principal with specialist medical accountants Ramsay Brown & Partners, www.ramsaybrown.co.uk

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