More than 500 doctors have unnecessarily paid over £17.7 million in lifetime allowance charges, a new Freedom of Information request from Quilter has shown.
The data showed 506 doctors who have retired and paid LTA tax charges could have avoided the extra charge if they had filled out a form known as Individual Protection 2016, or IP16. Collectively, they had a total of £71,004,784, which could have been protected under IP16, Quilter said.
The news comes after Chancellor Jeremy Hunt announced in his Budget that the lifetime allowance has been scrapped, in part to help stop senior doctors reducing hours or retiring early due to significant tax charges.
An earlier FOI made by Quilter at the end of 2021 showed that 400 doctors had overpaid LTA charges totalling £11 million. Since this issue was raised, 152 doctors have subsequently applied for lifetime allowance protection but there’s an additional 245 doctors who have since retired with LTA charges that could have been protected. As a result, the amount of tax potentially able to be reclaimed has increased by £6.7 million.
Quilter said the NHS Business Service Authority (NHSBSA) should contact all members directly to explain the administration they need to complete in order to rectify the issue and have the LTA charges refunded.
LTA protections were introduced following reductions in the LTA and were designed to help those with pensions already valued above certain limits. One of the most recent protections, which was available until the LTA was scrapped, is IP16. This enabled individuals to have a protected LTA of the value of their pension savings at 5 April 2016 if they were more than the standard lifetime allowance, up to a maximum of £1,250,000.
Quilter said affected members could still retrospectively apply for IP16 to be applied to their pension.
Graham Crossley, NHS pension specialist at Quilter, said the findings shine a light on why the government felt it necessary to scrap the lifetime allowance.
“The complexity of this tax law was catching out numerous medical professionals and landing them with significant tax bills they might have been able to avoid. It was producing artificial behaviours that ultimately was having a damaging impact on our health service.
“Given the government’s recent steps to improve pension taxation on healthcare workers, we have also written to the Department of Health and Social Care to instruct NHBSA to contact all those members directly and provide factual information, which explains how applying for the protection might impact their overall outcome ultimately resulting in these LTA charges being refunded.
“These members have paid huge lifetime allowance tax charges simply because they failed to fill out a form. Thankfully this is an easy matter of NHSBSA providing factual information to members which they can choose to act on rather than recommending a course of action, which might be deemed financial advice.”
Crossley said the vast majority of retired doctors who suffered lifetime allowance charges will have found the news at the budget that the tax rules were set to be scrapped as bittersweet as there will be nothing they can do to get back the taxes they paid.
“However, for some there is still a chance that these unnecessary tax charges can be clawed back. Seeking financial advice to understand your position is critical,” he added.
