Dr Benjamin Holdsworth on the tax implications of the CEA
Doctors who have recently received a Clinical Excellence Award (CEA) have proved they have gone “above and beyond” for their profession. It can therefore come as a surprise to discover that the recognition from their peers could prove to be a substantial tax burden.
The two award systems (local and national) now impact pension benefits in different ways. While new local CEAs are non-pensionable, the national system remains pensionable, which can create issues for those moving from one system to another. An increase in your pensionable pay can lead to significant savings inputs, while all awards boost your total taxable income, which could force you to breach the annual allowance – the total amount which your pension can increase by each year while still attracting income tax relief. Any excess pension savings above this figure may trigger a tax charge.
The standard allowance is currently set at £40,000, but there is now a new “tapered” annual allowance that reduces the limit down further – to as low as £10,000 per year for high-earning doctors. To make matters more challenging, doctors receiving new awards will have them backdated to April 2018. Unfortunately, this means they may only find out if they are liable for a tax charge long after the current tax year is finished, as the NHS Pensions Agency will not write to those breaching the annual allowance cap until autumn this year.
Getting your own position checked as soon as possible is key to avoiding a substantial extra tax bill. There are multiple options for paying a resultant tax charge – via self-assessment, through NHS Scheme Pays, or even utilising a personal pension which could prove to be very tax-efficient.
It is essential you receive the right advice in this area.
Dr Benjamin Holdsworth is director of Cavendish Medical – specialist financial planners for medical professionals in the NHS or private practice. For a second opinion on your finances, please contact us on 020 7636 7006. www.cavendishmedical.com
The content of this article is for information only and must not be considered as financial advice. Cavendish Medical always recommends that you seek independent financial advice before making any financial decisions.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The value of investments and the income from them can fluctuate and investors may get back less than the amount invested.