Tax exemption on McCloud benefits – but who pays for the remedy?

The chancellor used his Autumn Budget statement to declare that those receiving extra benefits as part of the McCloud remedy will not have to pay additional tax.

The announcement specified that NHS scheme members will be exempt from tax charges which arise by way of compensation benefits. The McCloud remedy or ‘judgement’ sets out how and when those deemed to have suffered age discrimination by moving to the 2015 NHS pension scheme will be compensated in the future.

Essentially, NHS scheme members will be able to choose the benefits they wish to receive by way of compensation – either those from their legacy scheme or those from the 2015 scheme – at the time of drawing their benefits.

While full details of the tax break have yet to be published, it is envisaged that individuals will be given an option to ‘protect their pension rights’ from the lifetime allowance and be able to use an extra ‘annual allowance’ against their compensation benefits. HMRC has stated that the new measures will come into effect from 6 April 2022 so we would hope that further information is made available soon.

However, in a new twist, it was revealed this month that the BMA is threatening legal action over government plans to make NHS scheme members pay for the McCloud remedy benefits. The public accounts committee has previously estimated that the cost of the compensation would be around £17billion.

The proposed action follows that of the Fire Brigades Union which has already signalled its intent to file for judicial review. BMA pensions committee chair Vishal Sharma said: “It is entirely wrong in principle that the government is passing the costs of remedying age discrimination, for which it and it alone was responsible, on to NHS Pension Scheme members. It is effectively trying to make NHS scheme members pay for its unlawful age discrimination.”