11 April 2023
Following a Freedom of Information (FOI) request from Quilter, the wealth manager and financial adviser, it has emerged that over 500 doctors have unnecessarily paid over £17.7m in Lifetime Allowance (LTA) charges.
The news comes after it was announced in the autumn budget that the lifetime allowance has been scrapped in part to help stop senior doctor reducing hours or retiring early due to significant tax charges.
At the end of 2021, Quilter believed that a substantial number of doctors had missed out on applying for LTA protection and had paid more than necessary in tax. At the time through an FOI, it emerged that 400 doctors had overpaid LTA charges totalling £11m.
Our new FOI data show that 506 members who have retired and paid LTA tax charges could have benefited from IP16. They had a collective total of £71,004,784 which could have been protected under IP16. Since the issue was raised in 2021, 152 doctors have subsequently applied for lifetime allowance protection, but there’s an additional 245 doctors who have since retired with LTA charges that could have been protected since the issue was unearthed.
As a result, the amount of tax potentially able to be reclaimed has increased by £6.7 million.
NHS Business Service Authority (NHSBSA) should contact all members directly to explain the administration they need to complete in order to rectify the issue and have the LTA charges refunded especially in light of the lifetime allowance charge being abolished from 6th April 2023.
LTA protections were introduced, following reductions in the LTA, to help those with pensions already valued above certain limits. By applying for ‘protection’ you are able to protect the value of the benefits built up and, in some cases, future benefits that may accrue, from tax charges.
One of the most recent protections, which was available until the LTA was scrapped, is Individual Protection 2016 (IP16). This enabled individuals to have a protected LTA of the value of their pension savings at 5 April 2016 if they were more than the standard lifetime allowance, up to a maximum of £1,250,000.
As the LTA tax charge is 25%, these 506 members could have collectively saved £17,751,196 had they applied for IP16 before retiring. However, this is a conservative estimate because it is possible for the excess over the lifetime allowance to be taken as a lump sum and in that case is charged at 55%.
The impacted members still could retrospectively apply for IP16 to be applied to their pension. Whilst it is the member’s responsibility to apply for LTA protection, Quilter has raised the issue directly with NHSBSA and proposed a solution it could implement to help these members, which would amount to a matter of administration, rather than financial advice.
Graham Crossley, NHS pension specialist at Quilter:
“This information shines a light on why the government felt it necessary to recently scrap the lifetime allowance. The complexity of this tax law was catching out numerous medical professionals and landing them with significant tax bills they might have been able to avoid. It was producing artificial behaviours that ultimately was having a damaging impact on our health service.
“Given the government’s recent steps to improve pension taxation on healthcare workers, we have also written to the Department of Health and Social Care (DHSC) to instruct NHBSA to contact all those members directly and provide factual information, which explains how applying for the protection might impact their overall outcome ultimately resulting in these LTA charges being refunded.
“These members have paid huge lifetime allowance tax charges simply because they failed to fill out a form. Thankfully this is an easy matter of NHSBSA providing factual information to members which they can choose to act on rather than recommending a course of action, which might be deemed financial advice.
“The vast majority of retired doctors who suffered lifetime allowance charges will have found the news at the budget that the tax rules were set to be scrapped as bittersweet as there will be nothing they can do to get back the taxes they paid. However, for some there is still a chance that these unnecessary tax charges can be clawed back. Seeking financial advice to understand your position is critical.”
