Scheme Pays Election - Beat the 31st July Deadline

There are two significant dates in the Self-Assessment tax calendar (31 January and 31 July). Both dates normally reduce the level of funds in your bank account as these are the dates tax payments are due under self-assessment.

31 July is also significant for healthcare professionals, as any scheme pay election needs to be submitted to the Pensions Agency by this deadline.

From 2017/18 it has been possible for the pension scheme to settle the full tax charge resulting from the excess NHS pension growth and the deadline for submitting this to the pension agency is 31 July 2019.

Any scheme pays election for 2018/19 will need to be submitted by 31 July 2020.

Who is affected?

For individuals with adjusted income over £150,000 the Annual Allowance of £40,000 in the tax year will be reduced. It will not be reduced if the threshold income for that year is £110,000 or less, no matter what the adjusted income is.

For every £2 the adjusted income goes over £150,000, the annual allowance for that year reduces by £1. The minimum reduced annual allowance is £10,000.

If the pension growth made in the tax year is more than the available Annual Allowance, the excess amount should be shown on the Self-Assessment tax return. The available Annual Allowance is the reduced Annual Allowance plus any unused allowance from the previous 3 tax years. Given that the tapered limits are unlikely to change it is important to track any unused pension relief to avoid any unnecessary tax charges. The level of tax charge will be dependent upon the individual’s marginal tax rate.

From a practical viewpoint the individual has three options when faced with a tax charge:

• Submit a Scheme Pays Election by 31 July 2019 - tax charges relating to the 2017/18 tax year.

• Pay the tax charge personally - this should have already been settled by 31 January 2019 for tax charges relating to 2017/18.

• Submit a partial Scheme Pays Election by 31 July 2019 for the scheme to settle part of the tax charge. The balance should have been settled personally by 31 January 2019.

The Scheme Pays Election is a practical answer to mitigate the tax burden but an individual needs to be aware of the restrictions that will be placed upon the scheme as a result of the charge, which is likely to reduce the final pension. We recommend that clients take independent financial advice if they have concerns about receiving a reduced pension.