5 top tax tips for 2017
Not paying a penny more in tax than you should and making your money work harder should be on your list of New Year’s resolutions. Faye Armstrong** has five tips to get you started
1. Look at Lifetime ISAs
Lifetime ISAs are a very tax efficient way of saving and also have the added benefit of being topped up by the Government. Everybody aged between 18 and 40 can open a Lifetime ISA and contribute up to £4,000 a year, which the Government will top up by another 25%.
Any contributions to a Lifetime ISA will count towards the maximum amount that an individual can put into any type of ISA of £20,000 a year.
Although you have to be under 40 to open a Lifetime ISA, once you have done so you can carry on contributing until you are 50. The money can be taken out after the age of 60, when it will be tax free and won’t count towards your pension lifetime allowance.
Alternatively a Lifetime ISA pot can be used to buy your first home, so it is also a good way to encourage your children to save to get on the property ladder.
2. Give a gift
Take a perk from your limited company, or give a gift to your staff. Small gifts to employees and company directors are now taxed much more generously under the new ‘trivial benefit rules’.
The gift must be a genuine gift, so the employee cannot be entitled to receive it, nor should it be given in recognition of work done. The gift cannot be in cash, but could be in the form of a gift card and has to be under £50 a time.
If all these requirements are met, the employee pays no tax when they receive the gift, but the employer gets tax relief on the cost of giving it. You can make unlimited gifts to unconnected staff, but there is a limit of £300 a year for gifts to most company directors and their family members.
3. Beware of the forgotten taxes
Some of the most painful tax problems come from taxes which get forgotten about. A good example is Stamp Duty Land Tax (SDLT), which most people remember has to be paid when purchasing property, but which tenants often forget is also potentially payable when they are granted a new surgery lease.
The amount of SDLT depends on the length of the lease and the amount of rent and any premium paid, but can be fairly easily calculated.
The other tax often forgotten about is VAT, and as practices get larger it is very easy to unknowingly trip over the VAT registration threshold (currently £83,000) due to the level of private fee, medico-legal, non clinical work done for CCGs and other ad hoc work.
4. Plan for surgery sales
Practice mergers or reorganisations often result in the sale of surplus surgery buildings, and it is important to plan well ahead to minimise the capital gains tax due on these disposals.
The tax charge is based on the increase in value during the partner’s ownership, and is not affected by any loans secured on the surgery as is often thought.
In any tax year the first £11,100 of gains are tax free, and capital gains tax rates have fallen so the full rate paid by higher rate tax payers on sales of commercial property will only be 20% compared to the previous rate of 28%.
The tax liability can be minimised further by transferring a share of the surgery to a spouse. This allows you to take advantage of their capital gains tax annual exemption, and potentially have some of the gain taxed at 10% rather than 20% if the spouse is a basic rate tax payer.
Your tax saving has to be weighed up against the legal cost of arranging the transfer, and if there is a loan secured on the surgery, the bank will need to be on board with the process.
Another opportunity to explore with your accountant is whether any of the gain qualifies for Entrepreneurs’ Relief on the basis that an owner has recently dropped sessions and reduced their interest in the partnership.
5. Maximise The Residence Nil Rate Band
6 April 2017 will see the introduction of the Residence Nil Rate Band (RNRB). This is an additional inheritance tax exemption, and will apply to estates that include a residential property as long as the property has been occupied by the deceased as their home at some point.
The exemption will be £100,000 from 6 April 2017, thereby increasing the amount that can be passed on without paying inheritance tax to £425,000. The exemption will increase by £25,000 each year until it reaches £175,000 on 6 April 2020.
Two of the key points to remember if you hope to benefit from the relief are:
- The property must pass to direct lineal descendants (such as children, grandchildren) so check your will to make sure the property will be inherited in a way that makes the exemption available.
- The RNRB will be tapered where the death estate (before reliefs and exemptions) exceeds £2m. But, any gifts given during your lifetime are not included in the £2m limit, however long there is between it being made and the death of the donor. So gifts can be given close to the end of life to maximise the exemption.
** Faye Armstrong is a partner with Dodd and Co
This article first appeared in the Winter 2016/17 issue of AISMA Doctor Newsline, the newsletter of the Association of Independent Specialist Medical Accountants.
Tax is a complicated area so if you would like specialist help on tax or any other accountancy issue please contact Des to make an appointment t. 0800 019 1744 e. firstname.lastname@example.org