Ndubuisi 'Andy' Egwim (YouTube video) warns doctors and healthcare professionals about a "60% tax trap" that can occur when personal tax allowance is lost, and advises practical steps to reduce taxable income by increasing pension contributions. He recommends logging into your HMRC personal tax account, using the free tool nhsssalarycalculator.com to calculate affordable pension contributions, and explains HMRC pension tax relief: basic-rate taxpayers receive 20% automatic relief, while higher-rate (40%) taxpayers receive 20% at source and must claim the additional 20% via self-assessment. He also gives motivational examples to encourage early saving.
Questions this video answers
nhssalarycalculator.com
20% tax relief
HMRC gives 20% at source; the additional 20% is claimed through self-assessment
Chapters
There are a couple of things you can do to come out of that 60% tax trap. Because by the time you lost that your personal tax allowance in comparison with the rest of the population, you are paying an effective tax rate of 60%. So you've lost your entire tax allowance. HMRC may not tell you anything, but if you log into your personal tax account, if you don't have it, go and get it. It's easy to do the previous guide you downloaded, it shows you how to open it, know what is happening with your tax, because you need to give Caesar what belongs. So why would you pay yourself direct debit too? You can reduce your taxable income and if you're a doctor, healthcare professional, even if you're a professional, you can go to nhsssalarycalculator.com as we built that tool for free. So I built it because I kept explaining this thing and people are not understanding it. You can work out how much pension you can put into your pension. You can increase your pension and reduce the tax that HMRC can collect. Why would I do that? Pension? I'm just 35. Look, let me tell you something. You might be thinking that 55 is far. It's not too long ago that we are teenagers in medical school. And think about your life. If you have started saving even ten pounds and investing it just when you started working ten pounds every month, you'll be surprised where you'll be. And I know some of you have done more than that. But for those of you who haven't, you might think money had not passed through your hand. But I had a doctor tell me that he sat down, calculated all the money he's been paid over the last 10 years. He realized that he's been paid more than a million pounds and he doesn't know where it is. So if you put money in your pension, it will drop your taxable allowance. Because once you put money in your pension, HMRC gives you tax relief. So if you're a 20% taxpayer, HMRC give you 20% on the money you put on your pension. If you're a 40% taxpayer, HMRC will give you 20% and then you claim the other 20% through self assessment. So one way you can avoid the 60% tax trap is to contribute more to your pension.
