How the 2014 Autumn Statement affects you
The Autumn Statement – Sum Up
With the General Election just around the corner, this particular Statement by George Osborne expected to bring forth more substantial changes than usual. And it did.
To some degree doctors and dentists will welcome these changes; reductions in Stamp Duty Land Tax (SDLT) for homebuyers (for properties costing less than £937,500,) new rules for ISA’s upon death and other, albeit small rises in the personal allowance, state pension and ISA allowance.
On the downside, changes to Incorporation, which had been a big tax saving benefit for doctors and dentists, means there is going to be a shift for those Sole Traders and Partnerships who perhaps had earmarked starting a limited company for both commercial and tax reasons.
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Let’s look in a bit more detail at some of theses highlights.
The Autumn Statement – The highlights
(+) Stamp Duty Land Tax (SDLT)
The starting rate for SDLT is now £125k, with immediate effect. Rather than a tax charge applying to the whole property value if it falls above this level, there is now a tiered approach applying just to the proportion of the value that falls within each bracket, as follows.
|Slice of property value (£)||Rate (%)|
98% of homebuyers are expected to reduce the amount of SDLT they pay and only those investing in properties over £937,500 will result in paying more than they would currently.
So it’s good and bad news, depending on your budget. However, changes are expected to help first time buyers and encourage investment into property to boost the overall economy.
(+) Individual Savings Accounts (ISA’s)
New regulations are set in place for spouses and civil partners to automatically inherit their partners tax free ISA status upon death. Currently thousands of people were losing out on tax advantages here even if their money had been saved together. This is from immediate effect.
From April 2015, the surviving spouse will also be given an additional allowance equal to the ISA savings balance.
The overall ISA allowance will increase to £15,240, to further encourage savings across the board.
The beneficiaries of individuals who die under the age of 75 will soon be able to receive payments tax free, from “joint life” or “guaranteed term” annuity policies.
This follows on from recent changes in pension policy as discussed in our recent article – Pensions- Autumn Update.
(+) Other small plus points
- Personal Allowance – A small increase for 15/16 to £10,600
- State Pension – A small increase by 2.5%
- IHT – nil rate band (as previously proposed)
(-) Removal of tax benefits related to incorporation
The biggest news that could quite significantly affect the future tax position of dentists and doctors trading currently as Sole Traders and Partnerships is changes to Incorporation legislation that will restrict tax benefits.
Currently, there is the option to legitimately “sell” goodwill (which, broadly speaking is the value of your patient list) to the new limited company at the effective rate of 10% Capital Gains Tax (CGT). This CGT rate has been immediately increased to 28%, making the process of valuing and selling goodwill non-viable from a tax perspective.
Secondly, the purchase of the goodwill, in some circumstances, could be written off by the limited company. This benefit no longer exists either, in respect of new incorporations, also effective immediately.
If you have an Incorporation Review in process or it was something you were considering for 2015, then it would be wise to speak with a specialist accountant about your options. Time is now of the essence.
Lansdell & Rose will be covering this subject in more detail in January with an integrated look at tax savings for 2015.
To discuss your situation in advance, we would be happy to help with bespoke, effective tax planning for you. Lansdell & Rose as specialist dental accountants act for over a hundred dentists and doctors so know your profession and the challenges you face. Call today to book an appointment with Michael or Mark.
T: 020 7376 9333