As we draw closer to the end of the 2024/25 tax year, it’s an opportune time for dentists to review their pension planning strategies, especially for those with incomes over £100,000. This period offers a chance to optimise retirement savings and minimise tax liabilities before the 6th of April. This article is dedicated to shedding light on critical tax planning measures, including navigating the nuanced tax implications at this income level and enhancing pension contributions and provision.
Navigating the tax implications for incomes over £100,000
Income above £100,000 triggers a reduction in the personal allowance, where for every £2 of income above this threshold, £1 of personal allowance is lost. This adjustment effectively increases the marginal tax rate on earnings within the £100,000 to £125,140, also impacting tax-free childcare eligibility.
Strategic pension contributions
A strategic approach to mitigate these tax implications is through additional pension contributions. Such contributions serve to reduce taxable income, possibly reinstating some of the personal allowance and maintaining eligibility for certain tax benefits. A key step in this strategy is performing a ‘headroom check’. This process involves assessing how much more you can contribute to your pension without incurring additional tax charges, ensuring that any extra contributions are within the limits of your annual allowance.
This approach is particularly pertinent for dentists, who might have unique opportunities to adjust their pension contributions. Although for many annual allowance inputs may be higher for this year due to lower inflation and increased salary increments there may still be potential for additional pension contributions using the carry forward facility particularly for members within the 1995/2008 NHS Pension Scheme. For the 2023/24 tax year, inputs were generally lower due to an inflation figure of 11.1% uplifting the opening value and consequently leading to lower pension input amounts (PIA’s). This along with the annual allowance increasing from £40,000 to £60,000 in the same year has increased the possibility to carry forward unused allowances which can go back over the last three years creating a prime opportunity for enhancing pension savings.
Utilising ISA allowances
Beyond pension contributions, maximising your ISA allowance offers another avenue for tax-efficient savings. With a limit of £20,000 for the 2023/24 tax year, ISAs provide a valuable tool for tax-free growth and withdrawals, complementing your pension efforts.
With the tax year nearing its close, taking proactive steps in pension and tax planning is essential. For tailored guidance, engaging with a financial adviser is recommended to align your strategies with your long-term financial objectives.
Disclaimer
The information provided herein is based on current tax laws and regulations, which are subject to change.
The Financial Conduct Authority (FCA) does not regulate tax advice.
Please be aware that the value of investments can fall as well as rise, so you could get back less than you invest. Past performance is not a reliable indicator of future results.
The above should not be seen as providing individual financial advice.
Content correct at time of writing.