Senior NHS dentists beware of the LTA freeze and McCloud judgement

In his recent budget, the Chancellor announced that Income Tax thresholds, Capital Gains Tax annual exemption and Inheritance Tax nil rates bands will all be frozen. One for any senior NHS dentists to watch out for is the freezing of the pension Lifetime Allowance (LTA).

LTA normally increases each year with inflation but will now remain at £1,073,100 until April 2026. The LTA is the total amount of pension savings you can accrue over all your pension ‘pots’ without facing additional tax charges when you begin to take retirement benefits.

When it comes to NHS pension schemes, these are defined benefit schemes which nowadays are far less common. Unlike defined contribution schemes, where the actual value of your pension fund is tested against the LTA, the defined benefit schemes don’t have a fund – you need to convert the value of your pension into a ‘cash value’ for assessing against the LTA. This can be a complicated calculation, especially if you have both an NHS pension scheme and your own separate personal defined contribution scheme.

On another note, the recent Court of Appeal ruling on the McCloud judgement which determined the protection for all age groups who were in the old legacy public pension schemes, means you can now choose if you want to receive your benefits through the legacy scheme or the new reformed scheme for your service between 1 April 2015 and 1 April 2022. The differences in benefits between the two schemes can be substantial, depending on various factors, so it’s important to take advice and make an informed choice.

If you require help in assessing your potential exposure to the LTA charge and advice on ways to mitigate the resulting tax charges, or help in deciding which scheme to access your benefits from, please get in touch with our EQ Healthcare team via healthcare@eqaccountants.co.uk or by calling one of our offices.