Doctors have ‘unnecessarily’ paid £17.7m in LTA charges

More than 500 doctors have unnecessarily paid £17.7m in lifetime allowance (LTA) charges, according to a freedom of information request from Quilter.

At the end of 2021, Quilter believed that a substantial number of doctors had missed out on applying for LTA protection and had therefore paid unnecessary tax.

Through a freedom of information request at the time, it was revealed that 400 doctors had overpaid LTA charges totalling £11m.

The new freedom of information data found that 506 doctors who had retired and paid LTA charges could have benefited from Individual Protection 2016 (IP16).

They had a total of £71m that could have been protected under IP16, according to Quilter.

IP16 allows individuals to have a protected LTA of the value of their pension savings at 5 April 2016 if they were more than the standard LTA, up to a maximum of £1.25m.

Since the issue was brought to light in 2021, 152 doctors have applied for LTA protection, but there were an additional 245 doctors who have since retired with LTA charges that could have been protected.

According to Quilter, the amount of tax potentially able to be reclaimed has increased by £6.7m.

Quilter urged the NHS Business Service Authority (BSA) to contact all members to explain the administration they need to complete to rectify the issue and have the LTA charges refunded, especially in light of the LTA charge being abolished from 6 April.

Affected members can still retrospectively apply for IP16 to be applied to their pension.

“This information shines a light on why the government felt it necessary to recently scrap the LTA,” Quilter NHS pension specialist Graham Crossley commented.

“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 NHS BSA 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 LTA tax charges simply because they failed to fill out a form. Thankfully this is an easy matter of NHS BSA 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.

“The vast majority of retired doctors who suffered LTA 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.”

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