Top income tax rate

Q: I will be a 50 per cent taxpayer in 2011/12. A financial adviser said if I make personal pension contributions, I will get 50 per cent tax relief on them. Is this too good to be true?

A: The adviser is correct. The 50 per cent tax rate has many disadvantages, apart from pension relief. Many GPs are liable to 50 per cent tax from 6 April 2011, but the government stated in last month's Budget that the highest rate will become 40 per cent again when it is affordable.

If you want to make use of the 50 per cent tax break, you should do this as soon as you can this tax year. With the NHS Pension Scheme facing change in the light of the Hutton report and the new annual £50,000 pension contributions ceiling, it is vital to plan. Many people think a pension pot of, say, £200,000 is a large sum, but it might provide much less in annual income a year than they anticipate.

Before putting £50,000 in a personal pension (a net cost of £25,000) calculate the value of your NHS pension first in case you will go over the annual limit.

This is complicated and you will need professional help. If you were below the annual pensions contributions limit in any of the past three tax years, you can make up the shortfall (via a carry forward allowance) if you have the means.

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