31 May 2022
Pensions Annual Allowance Tax Charge Due to High Levels of Inflation:
Current inflation rates are 9%, which is the highest they have been in 40 years, and the Bank of England are predicting that inflation could be as high as 10% by the end of the year. For those contributing to the NHS Pension Scheme during the current (2022/23) tax year this means that there is a higher than normal chance that the growth in the pension scheme will exceed the generally allowed amount of £40,000 (the annual allowance) as pension growth is directly affected by inflation rates. Any pension growth in excess of this amount is charged to tax at 40% to 45% for most people and for high earners the annual allowance itself could also be reduced from the standard £40,000 down to as little as £4,000.
If you have suffered annual allowance tax charges on your pension in the past it is likely that these charges will impact you. However, these charges are also likely to affect others that have previously not had annual allowance tax issues.
The government are under pressure from the BMA to make changes to the way pension growth is calculated and/or to provide a temporary solution like they did in 2019/20 with the annual allowance compensation scheme. We will of course keep this under review and contact you with any developments as soon as we know more.
In the mean time, we are working through the clients we believe will be affected and we will of course be undertaking our usual annual pension reviews for accounts meetings but it may not be possible to avoid a tax charge for some individuals if earlier action is not taken.
If you think you might be impacted and would like to consider whether to take any action to mitigate the possible tax charges please get in touch with your usual Dodd & Co contact.
Please remember to download an up to date Total Rewards Statement and forward it to us as well as a copy of any Pensions Savings Statements you receive.
If you have any queries contact your usual Dodd & Co adviser or email hello@doddaccountants.co.uk.
