Are you a GP who is missing out on a pension and tax opportunity?
2 November 2021
This is a very busy time of year for Financial Advisors and Accountants. It is the time when self-assessed individuals must pay their Income Tax for the previous year. There is an opportunity to reduce this tax bill by contributing to a pension plan before the 31st of Octoberwhich is the final date on which you can claim tax relief on backdated pension contributions. This date is extended to 17th November 2021 if you or your accountant use Revenue Online Services (ROS) to pay your tax bill.
We understand that it is nearly always a busy time of year for General Practitioners (GPs); nonetheless, it is important and can be particularly worthwhile for you to devote some time to your own financial care and provisions for retirement. You must submit your tax return at this time of year just like everyone else and, like everyone else, you can choose to make a pension contribution that will offset some of this tax. However, if you are a GP, care must be taken when making a pension contribution to ensure that the plan(s) you are paying into are correctly set up in compliance with Revenue rules, which are even more onerous than for other individuals.
Many GPs will have two sources of income, private practice earnings and payments received from the HSE under the General Medical Services (GMS) contract (known as Capitation Fees). Often it is the case that you can make pension contributions and claim tax relief against both sources of income; however, this needs to be well thought out and planned. As well as Revenue imposing the usual age related and income limits on the amount that can be paid, there are various other restrictions that apply.
The maximum amount of earnings that can be used for pension purposes is €115,000. This includes net GMS income as well as Net Relevant Earnings from any private practice and the maximum percentage of this amount you can contribute to a pension is dictated by your age. For example, a GP in their 30’s can pay up to 20% of the €115,000 into a pension, whereas a GP in their early 50’s can pay up to 30%.
GP’s who have a GMS contract are likely to be members of the GMS Superannuation Pension Plan, to which they contribute 5% of their total Capitation Fees. This also must be accounted for when calculating the maximum annual pension contribution to any personal arrangements.
Did you know that Revenue rules also demand that before paying a pension contribution against your private practice income, you must first pay the maximum you are allowed into an Additional Voluntary Contribution (AVC) pension plan against your GMS income? Therefore, if your net GMS income exceeds €115,000 and you maximise the amount you pay against that income, you will not be able to make any contribution to a pension against your private income.
As you can see, pension planning for GPs is not straightforward and it is important to take some time to look at your individual circumstances. However, a consultation with a Qualified Financial Advisor ahead of making any decisions could be invaluable to avoid any issues at a later stage.
Lisa Doherty BBS QFA RPA SIA is a Qualified Financial Advisor, Retirement Planning Advisor and Specialist Investment Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on lisad@jfl.ie
