Higher inflation figure means increased tax bills for higher earning GPs

Yesterday’s announcement that inflation in the year ended September 2017 increased to 3% means higher earning GPs who are subject to annual allowance pension tax charges face increased tax bills in 2017/18.

The September inflation rate is used by the NHS pension scheme to set the revaluation rate each year which is inflation plus 1.5%. This means that the value of career earnings will be increased by 4.5% in 2017/18; a significant increase in the value of pension benefits.

Although the annual allowance calculation is meant to exclude inflationary rises, the inflation rate used in the calculation is that of September 2016 (which was only 1%), not the September 2017 rate of 3%.

Therefore, as benefits in 2017/18 will increase by 4.5%, and the allowance for inflation is only 1%, higher earners are going to be taxed on a 3% increase in their career earnings.

Luke Bennett, partner at PKF Francis Clark and Executive Committee member of the Association of Independent Specialist Medical Accountants, said: “This seems unjust, when in reality the uplift is only 1.5% above inflation. The position will correct itself if inflation falls back next year, but that’s no comfort to those facing high annual allowance tax charges in 2017/18.”