The Budget: Three key questions for doctors

Opening the red box

It was a Budget designed to reignite growth in the economy, tackle the cost of living and boost the government’s flagging popularity. But what was in the red box for doctors?

Here Alec Collie, Head of Medical, answers three key questions for medics about the announcements shared in the recent Autumn Budget.

Q. What does the decision to freeze Income Tax bands mean for me?

A. The Government has frozen income tax thresholds until 2031. This means more medics could be pulled into higher tax bands as pay rises, promotions or extra shifts increase their earnings.

Once your income exceeds £100,000, your tax-free personal allowance starts to reduce. This effectively means you pay a marginal tax rate of 60% on earnings between £100,000 and £125,140. At the same time, you also become ineligible for tax-free childcare, which is worth up to £2,000 a year for every child up to the age of 11.

It is a stealth tax that's quietly chipping away at medics' take-home pay and adding to the feeling that this is a tax system that is stacked against medics trying their hardest for their patients. It also means they're left facing the prospect of taking on extra hours and responsibility while only being paid for a fraction of their additional work.

For GP partners, they have the additional pressures of rising practice costs which will be further impacted by the confirmed rise in the minimum wage. GPs at the start of their career will be forgiven for wondering what incentive there is at all to pursue partnership.

The extension on the threshold freeze makes it even more important to think about your tax planning. Our article on the 60% tax trap explores some of the ways you can help manage your income tax exposure.

Q. How will the Budget affect my retirement plans?

A. NHS Pension Scheme members will be relieved that the Chancellor ruled out a rumoured cut to the pension lump sum limit. That means medics can still take 25% of their pension pot as a tax-free lump sum, up to a maximum of £268,275.

Confirmation that the government will keep the tax-free pension lump sum unchanged will come as a huge relief to many doctors who have spent months worried about potential cuts.

It provides some stability after years of complex reforms and uncertainty following the McCloud judgement, and means retirement plans - often years in the making - can stay on track, and doctors can continue planning with greater confidence.

Q. And what about my savings and investments?

A. The Chancellor moved to reform Individual Savings Accounts from April 2027, with the aim of encouraging more retail investors.

While the overall ISA allowance remains £20,000 per year, the amount that can be subscribed to a Cash ISA will be capped at £12,000 for individuals under 65 from April 2027.

This means that up to £8,000 of the remaining allowance can be allocated to other types of ISA (such as Stocks & Shares) if the full £20,000 allowance is to be used. Those aged 65 and over can continue to subscribe the full £20,000 to a Cash ISA.

This change might mean more medics are considering starting or increasing their investments. While this is something we support, we must stress that you take an approach that's right for you.

There’s no 'one-size-fits-all' approach to investing. The 'right' approach reflects your personal goals, and tolerance to things like volatility and risk. Remember that investments can go down as well as up, so you may get back less than you invest.

Options such as 'smoothed funds', can be held in a Stocks & Shares ISA. These aim to 'smooth' out peaks and troughs in the investing journey, appealing to new investors nervous about day-to-day volatility.

Another important consideration for some medics will be the Chancellor’s decision to increase tax rates on dividends, property and savings income - all by 2%. Dividend tax will rise by 2% from April next year, and savings and property taxes from April 2027.

For medics working through limited companies, the dividend tax raise might have you re-considering how you take money from your firm. Options include retaining profits, adjusting the balance between salary and dividends, or making employer pension contributions.

Any decision requires careful consideration, as pension contributions must sit within the annual allowance and can quickly become complex. Working with a Specialist Financial Adviser can help you understand how best to structure withdrawals.

Watch our Autumn Budget analysis

This video is for information purposes only and does not constitute financial advice.