Pension Tax Planning for High Earners

One of the financial challenges facing many doctors today is a rising tax burden on their hard-earned income. Because the system is set up so that higher and additional rate taxpayers shoulder the majority of the tax burden, it is crucial that they employ strategic financial planning to help minimise the money they owe.

Dental & Medical Financial Services have been assisting doctors with their financial planning for over 30 years. To learn more about the current tax scenario and how to lower your tax bill, read on.

This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice. 

Current state of tax affairs 

Currently, one in six income taxpayers sits in the higher or additional rate tax band. But with the freezing of tax allowances and bands until April 2028, over 1.5 million more people will be pushed into a higher rate bracket. Additionally, high earners face even more financial strain as the reduction in the additional rate tax threshold to £125,140 in tax year 2023/24. Further complicating things for many doctors are child benefit taxes and dividend taxes. It all seems like high earners have lots to deal with when it comes to tax planning. But the good news is that there are steps to take to help mitigate your potential tax burden.

Pension contributions — A key tax planning opportunity 

While there are many strategies you can employ to help reduce the amount of tax you pay, one of the more significant opportunities that you can take advantage of, while also planning for the future, is making pension contributions.

The most common contribution set up is one where individuals pay 80% of their contribution while the government chips in the remaining 20% into the pension scheme. Twenty percent tax relief is available to non-taxpayers and if your highest rate of tax is over 20%, you can claim the balance under income tax self-assessment.

To potentially avoid an effective tax rate up up to 60%, consider pension contributions. Pension contributions reduce the income that is taken into account in the phasing out of the personal allowance where income exceeds £100,000. The tax relief you receive is based on the individual’s highest rate which ranges from 20% to 45%. Pension contributions can also help you to sidestep the additional rate tax band, which starts at £125,140 of taxable income, or the high-income child benefit tax charge, which affects those with income over £50,000.

There are even more benefits of pension tax planning. Recent tax announcements have made pensions even more of an attractive option, with increased maximum annual pension contributions and the elimination of heavy tax charges on withdrawals exceeding a lifetime allowance.

Professional pension tax planning

Pension and retirement planning can seem daunting and complicated. With ever-changing rules and regulations, it can be hard to get a grip on all you need to know.

Working with a professional financial adviser who specialises in working with doctors is key. The experts at Dental & Medical Financial Services are here to help you maximise your tax relief and save money through a customised pension tax planning strategy that fits seamlessly into your overall financial plan.

Pension planning is a fantastic tool for mitigating high tax bills and securing financial well-being. For personalised guidance and a comprehensive review of your financial plan contact Dental & Medical Financial Services today.

Free download Guide – Pension Tax Planning for High Earners