How the March 2016 Budget impacts on dentists

Alan Suggett reviews the 2016 Budget

Arguably the most significant changes announced are in relation to capital taxes

•  In the case of Stamp Duty Land Tax, with effect from midnight tonight the rates and limits are changed for commercial property but their impact is actually to reduce the SDLT paid on many properties. This is because the new rates will be applied only to the portion of consideration falling within each band. So, for example, a dental practitioner looking to purchase the freehold of a practice at a cost of £350k will find that under the new rules his SDLT cost will fall from £10,500 to £7,000 – a saving of £3,500.

• In the case of Capital Gains Tax, with effect from 6 April 2016, the current rates are reduced from 18% to 10% for basic rate income tax payers and 28% to 20% for higher rate income tax payers – except for disposals of residential property (which do not qualify for principal private residence relief) and “carried interest” from investment funds. Therefore anyone contemplating disposals giving rise to a CGT charge would benefit from deferring the transaction until after 5 April 2016.
• In particular, the reduction in the higher CGT rate from 28% to 20% means that those dentists contemplating a disposal of their practice but who, for various reasons, might not qualify for the Entrepreneurs Relief rate of 10% will be at less of a disadvantage.

 Those dentists who have incorporated their practices will be cheered by the Chancellor’s announcement of a further reduction in the rate of Corporation Tax. This is now set to fall to 17% by 2020.

 However, those dentists who are perhaps a bit lax in borrowing from their companies without ensuring that the cash taken out has been properly treated as either dividends or salary taxed under PAYE need to be aware that the rate of tax charged on “overdrawn loan accounts” is to be increased from 25% to 32.5%.

 On the personal tax front, the Chancellor reaffirmed his plan to steadily increase the tax free personal allowance, which will already increase from £10,600 in 2015/16 to £11,000 in 2016/17, by announcing that the PA for tax year 2017/18 would be increased to £11,500. However, he went further by announcing also an increase in the basic rate band for 2017/18. Currently in 2015/16, the higher rate of 40% applies once income has exceeded £42,385 (including income covered by the £10,600 PA). For 2017/18, the higher rate of 40% will not apply until income has exceeded £45,000 (including income covered by the £11,000 PA).

 However, the highest rate of 45% remains in place and, perhaps more to the point for many dentists, those with incomes above £100,000 will continue to find that their personal allowances are clawed back at the rate of £2 for every £1 in excess of that limit, so that in 2016/17 for example, the “effective tax rate” of 60% will still apply to any income falling between £100,000 and £122,000.

 Lastly, while as telegraphed in advance, the Chancellor avoided further changes on the tax treatment of pensions, he did have some material announcements on the savings front. First, he announced an increase on the annual savings limit for ISAs from £15,000 to £20,000. But, of perhaps more import and in keeping with his theme that this was a Budget that “put the next generation first”, he announced a new lifetime ISA available for those aged under 40, where in essence for every £4 saved by a qualifying individual the Government would contribute a bonus of a £1, continuing up to the age of 50.

Posted by Gemma