On the go: Chancellor Rishi Sunak will use his first Budget next Wednesday to raise the tapered annual allowance threshold income to £150,000 from the current £110,000, according to reports.
The Financial Times reported on Friday that the chancellor is expected to present this solution next week, which will give doctors and other high earners caught by the tapered annual allowance greater clarity over whether they risk being hit by the taper.
Anyone whose income goes above £150,000 will still be caught, but it could be a solution for those in the no-man’s land with an income of more than £110,000 but with additional ‘income’ such as pension rights and investment income, which could tip them above £150,000.
“Lifting the threshold should, to a certain extent, alleviate the issue of consultants wanting to take extra shifts without getting penalised,” a Whitehall official said.
“But this is a very generous tax break and, although we understand why the doctors are unhappy about this, we can’t remove the threshold completely because these are very well-paid people we are talking about.”
Under the current rules, the taper gradually reduces the annual allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
It means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost. The taper applies to individuals who have a threshold income – gross income minus any tax relievable contributions such as pension contributions – above £110,000.
It was argued in January that this solution would solve the problem for the majority of doctors, which have been turning down additional work for fear of large tax bills, since consultants’ median earnings are £112,000 and it is estimated that 90 per cent would fall below the new limit.
Pension specialists have already criticised this measure, calling it a sticking plaster that will not solve the underlying problem.
