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A trio of tax nasties

Here’s three cheers for the new year - and a trio of tax nasties to beware of

2019 presents some key opportunities for GPs arising from the last Budget. Faye Armstrong* outlines three to be aware of and warns of three more potential pitfalls to watch out for

What’s good?

  1. Lifetime allowance increase

The lifetime allowance will increase on 6 April 2019 from £1,030,000 to £1,055,000.

This is a modest rise but still a welcome one for many GPs. If you are close to or over the lifetime allowance threshold, remember that action can still be taken to mitigate the tax by taking a larger lump sum and smaller pension.

But this should only be done after speaking to your accountant and independent financial adviser (IFA).

  1. New tax relief for surgery developments

When a surgery development takes place then your accountant will split the costs into three categories:

  • spend on items such as plant and machinery
  • spend on integral features, such as the electrical and heating system
  • everything else.

Costs in the first two categories qualify for the Annual Investment Allowance and the first £200,000 of spend each year (or the first £1m for two years from 1 January 2019) can be set off against profits for tax.

Until recently there was no tax relief on the spend going in the ‘everything else’ pot.

But this changed on 29 October 2018 and costs in this pot other than the price of purchasing the land are now eligible for ‘Structures and Buildings Allowance’ (note this is only available on new constructions commenced on or after that date).

The rate of tax relief is quite modest, at only 2% of the eligible cost a year, but it is still very welcome to have a way of getting at least some tax relief where none was available before.

  1. Income Tax thresholds

The Budget’s benefit to the widest number of healthcare professionals are the changes to the personal allowance and the extension of the basic rate tax bracket.

The personal allowance will increase from £11,850 to £12,500 and the 40% tax rate will only kick in when taxable income goes over £50,000, whereas in 2018-19 any taxpayers earning more than £46,350 would pay tax at 40%.

This change could save those who can keep their taxable income under the £100,000 mark around £860 in Income Tax over the course of the year.

The savings are slightly smaller if taxable income goes over £100,000 as the taxpayer’s personal allowance will start to be withdrawn so the full benefit of the increase in the personal allowance will not be enjoyed.

But even if the individual’s earnings are over £125,000 and their personal allowance has been fully withdrawn, they could still benefit by £600 from the changes.

The additional rate tax threshold, above which taxpayers pay tax at 45%, was left unchanged at £150,000.

It is worth noting that Income Tax rates and thresholds in Scotland are different, and those for 2019-20 had not been published at the time of writing.

What’s not so good?

  1. Lower tax relief on high emission cars

If you plan to buy a new car with CO2 emissions of 110g/km or more it could pay to do so before 5 April 2019.  From that date only 6% of the car’s cost (restricted for private use) can be set against tax rather than the current 8%.

The overall tax relief received over the life of the car will be the same but the rate at which it can be claimed will be slower.

Most family cars, 4x4s and performance cars have CO2 emissions above 110g/km so this change will capture a wide range of vehicles.

If you can choose an alternative car with emissions between 51 and 110g/km you will be able to get tax relief on 18% of the car’s cost in year one (after a suitable adjustment for private use).

And if you can find a car with emissions of 50g/km or under then you get tax relief on the full cost of the car in year one (once again after a restriction for private use).

However, if you are looking for a car with CO2 emissions of 50g/km or less you really need to be shopping for an electric one.

  1. Entrepreneur’s relief restrictions

Entrepreneur’s relief can reduce the tax on gains from disposing of a business to 10%. This relief is often used by retiring GPs when selling their share in a surgery building or their shares in a pharmacy company where they have been a director.

Assets currently only have to be held for one year to be eligible for entrepreneur’s relief but from April 2019 this will be extended to two years.

This should not be too much of a problem for gains on surgery buildings because it is unlikely that a GP who has only owned the surgery for one year would have much of a gain to tax.

But for assets which grow in value more quickly this could be more of a problem. It is now more important than ever to start planning for asset disposals well in advance of them taking place.

  1. Take care when relocating

GPs are a relatively mobile group, and when moving practice, a house move is often involved.

A relocating GP will sometimes keep hold of their old home for a while, either to see how the new position works out or because it is taking a while to sell.

Currently, so long as the GP sells their house within 18 months of moving out, any gain made when the house sells should be tax free.

But there are plans to halve the period of time covered by this exemption so that from April 2020 a homeowner will have to sell their property within nine months of moving out to be sure it will still be fully exempt from capital gains tax.

Overall, last October’s Budget was much more positive than expected. The next one will either be triggered by a no-deal Brexit, or be the first outside the EC, so will certainly be one to watch. 

This article first appeared in the Winter 2018/19 issue of AISMA Doctor Newsline, the newsletter of the Association of Independent Specialist Medical Accountants.

If you would like to discuss any of the issues detailed above, please contact Des to make an appointment t. 0800 019 1744 or email advice@barringtons.co.uk