For many healthcare professionals, particularly GPs, consultants, and dental practitioners, the NHS Pension Scheme is a valuable but complex asset. Frequent changes to pension tax rules, particularly those affecting the annual allowance (AA) and lifetime allowance (LTA), mean that failing to plan ahead can result in significant tax liabilities.
Beyond pensions, healthcare professionals also face property tax, employment tax, and inheritance tax issues—many of which are shared by high earners but have additional layers of complexity in the medical sector.
In today’s Shipleys Tax article we take a brief look at the current tax risks healthcare professionals should be aware of in 2025 and provides practical solutions to avoid unnecessary financial burdens.
…healthcare professionals also face property tax, employment tax, and inheritance tax issues—many of which are shared by high earners but have additional layers of complexity in the medical sector.
1. NHS Pensions and the Annual Allowance Tax Trap
What is the Annual Allowance?
The Annual Allowance (AA) is the maximum amount of pension savings an individual can make each year with the benefit of tax relief. It includes contributions made by:
✔️ The individual
✔️ Their employer (NHS contributions)
✔️ Any third party
Since the NHS Pension Scheme is a defined benefit scheme, the contributions made in a tax year are irrelevant. Instead, the pension growth (pension input amount) is what matters. Any pension input exceeding the available AA is subject to tax at the individual’s marginal tax rate.
Annual Allowance in 2025
✔️ As of the 2024/25 tax year, the standard annual allowance is £60,000.
✔️ For high earners with income exceeding £260,000, a tapered annual allowance applies, reducing the available allowance down to £10,000 for those with an income above £360,000.
This means many senior doctors and consultants are still at risk of excess tax charges if their pension growth exceeds their available annual allowance.
Case Study: Dr Sara – A GP Partner and the Annual Allowance Tax Charge
Dr Sara is a GP partner with taxable earnings of £180,000 and superannuable NHS pensionable pay of £148,000 in 2024/25.
Her NHS Pension Contributions:
✔️ Employee contribution tier rate: 13.5%
✔️ Employer contribution rate: 20.6% (+0.08% admin fee by PCSE)
Dr Sara receives her Annual Pension Savings Statement and finds that her pension growth (pension input amount) is £55,000.
Does Dr Sara Have a Pension Tax Charge?
✔️ Annual Allowance for 2024/25: £60,000
✔️ Dr Sara’s pension growth: £55,000
Since her pension growth is below the £60,000 limit, she does not have to pay a tax charge.
What If Her Earnings Were Higher?
If Dr Sara’s adjusted income exceeded £260,000, she would be subject to a tapered annual allowance, which could be as low as £10,000.
📌 Solution: Doctors and professionals with incomes above £260,000 should check their threshold and adjusted income levels to determine whether their annual allowance is reduced. They may need to use carry forward allowances from previous tax years to avoid tax charges.
2. Lifetime Allowance (LTA) – Abolished, But Tax Risks Remain
The Lifetime Allowance (LTA) was abolished in April 2024, meaning there is no longer a limit on how much pension savings can be accumulated without triggering a special tax charge.
However, this does not mean pensions are tax-free:
✔️ When withdrawing pension benefits, the amount will be taxed at the individual’s marginal income tax rate.
✔️ Larger pension pots may push retirees into higher tax bands.
✔️ The structure of withdrawals now plays a crucial role in minimising tax liability.
A Freedom of Information request by Quilter found that before the abolition of the LTA, over 400 NHS doctors paid £11m in LTA tax charges.
📌 Solution: Doctors planning for retirement must now focus on how to withdraw pension income tax-efficiently rather than worrying about exceeding a lifetime limit.
Doctors planning for retirement must now focus on how to withdraw pension income tax-efficiently rather than worrying about exceeding a lifetime limit.
3. Other Tax Issues Facing Healthcare Professionals in 2025
A. Property Tax: Owning a Private Practice or Rental Property
Many GPs and consultants invest in private medical premises or buy-to-let properties, but this can trigger:
📌 Higher Stamp Duty (SDLT) – 3% surcharge on second properties.
📌 Higher Capital Gains Tax (CGT) – From April 2024, CGT on property profits is 24%.
📌 Mortgage Tax Relief Restrictions – Like everyone else, doctors can no longer deduct mortgage interest fully, increasing tax bills on rental income.
🔹 Options:
✔️ Holding property through a limited company (SPV) structure may help reduce tax.
✔️ Selling property in a lower tax year can reduce CGT liability.
B. Employment Tax: NHS Salary vs. Private Practice Income
Many doctors earn income from multiple sources, including:
- NHS salaried work
- Private practice
- Locum work
This can create tax complications, such as:
📌 IR35 Rules for Locums – If you work through a limited company, HMRC may tax you as an employee.
📌 National Insurance (NI) Charges – Higher pensionable pay means higher NI contributions.
🔹 Solution:
✔️ Optimising earnings between salary, dividends, and pension contributions can reduce tax.
✔️ Locum doctors should check their IR35 status to avoid unexpected tax bills.
C. Inheritance Tax (IHT) and Passing on Wealth
Doctors often have high-value estates, which means 40% Inheritance Tax (IHT) could apply on anything over:
📌 £325,000 (basic threshold)
📌 £500,000 (if including the Residence Nil-Rate Band for homeowners)
🔹 Solution:
- Gifting assets before death can reduce IHT exposure.
- Making sure pension death benefits are correctly structured can avoid unnecessary tax.
- Careful use of trusts and estate planning to mitigate IHT.
4. How Can Doctors Avoid Unnecessary Tax Charges?
– The NHS pension annual allowance is now £60,000, reducing tax charges for many doctors.
– Pension growth, not contributions, determines tax liability – get advice to calculate your pension input correctly.
– Property and inheritance tax planning can prevent surprise tax bills later.
– Use Family Investment Companies (FICs) to reduce inheritance tax (IHT) and manage long-term wealth efficiently.
How Can Family Investment Companies (FICs) Help Doctors?
A Family Investment Company (FIC) is a private limited company set up to manage family wealth, offering a tax-efficient alternative to trusts. This is particularly relevant for doctors and healthcare professionals who:
✔️ Have significant savings or investment assets.
✔️ Want to pass down wealth efficiently to their children while retaining control.
✔️ Are concerned about 40% Inheritance Tax (IHT) liabilities on estates over £325,000 (£500,000 including the residence nil-rate band).
Benefits of a FIC for Doctors:
🔹 Tax Efficiency – Corporation tax (currently 25%) on profits may be lower than personal tax rates.
🔹 IHT Planning – Shares in the company can be gifted over time, reducing the taxable estate.
🔹 Retained Control – Unlike trusts, doctors can retain full decision-making power over investments.
🔹 Flexible Income Distribution – Dividends can be paid to family members, utilising their lower tax bands.
Example:
Dr Sara, a high-earning GP, invests £1 million in a FIC instead of holding assets personally. Over time, she gradually transfers shares to her offspring, reducing her estate’s exposure to IHT while still maintaining control over investment decisions.
Key Takeaway
FICs offer long-term tax advantages and allow doctors to protect their wealth while minimising inheritance tax risks. Setting up a FIC requires careful planning and legal structuring, so consulting a specialist tax adviser is recommended.
Final Thought: Doctors and Healthcare Professionals shouldn’t have to pay more tax than necessary. With proper planning, you can navigate the bitter pill of higher taxation.
Need Advice on NHS Pensions and Tax?
If you’re concerned about pension tax charges, property tax, or inheritance planning, speak to a specialist medical tax adviser at SHIPLEYS TAX to explore your options.
For further assistance or queries, please contact us.
Leeds: 0113 320 9284 Sheffield: 0114 272 4984
Email: info@shipleystax.com
Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.
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