Senior clinicians are being warned against setting up limited liability partnerships to avoid high pension tax bills, as it could be considered tax avoidance by HM Revenue & Customs.

Ian Browne, pensions expert at Quilter, said guidance published on September 2nd by NHS Employers, an advisory body to NHS trusts, showed how complicated it was to navigate unexpected “tax traps”. The 15-page guide stated that some doctors were regrouping into limited liability partnerships to help mitigate pension tax issues.

A limited liability partnership is a group of professionals in independent practice who have joined together to share the costs of practising. The individuals in these arrangements are self-employed and any income received through the LLP will not be pensionable in the NHS Pension Scheme.

Mr Browne warned: “Some of the measures being adopted by doctors could later be deemed by the taxman as an avoidance scheme. This could end up with even worse publicity for pensions if doctors are later challenged by the taxman.”

NHS Employers also pointed to tax avoidance risks in the LLP setup. Furthermore from a practical perspective, it “may not be possible to take the necessary professional advice and to implement the arrangement during this financial year, before national solutions are available,” it added.

It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds, most likely because of the taper on the annual allowance. Introduced in 2016, the tapered annual allowance gradually reduces the 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. The taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.

HM Treasury will be reviewing the impact of the tapered annual allowance, after doctors have been campaigning to scrap it for months. This was as part of a further consultation on the rules of the NHS Pension Scheme, which will soon be published and replace the document published in July.

Mr Browne said: “It needs to be made a lot easier than this for public sector workers to navigate their pension savings, but constant Treasury tinkering has resulted in a tax system that is contradictory and is punishing those who least deserve it.”

He is also calling on the government to scrap the tapered annual allowance, “making pensions universally applicable and encourage saving, rather than the complete opposite”.

Source: Maria Espadinha FT Adviser 03/09/2019

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