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Coping with proposed changes to capital gains tax

The Chancellor is proposing to change the rules relating to capital gains tax on the sale of business properties. In the following questions and answer session, Ian Tongue of accountants Sandison Easson looks at how these changes could affect GPs

The Chancellor is proposing to change the rules relating to capital gains tax on the sale of business properties. In the following questions and answer session, Ian Tongue of accountants Sandison Easson looks at how these changes could affect GPs

I am a general practitioner in a surgery and have just learned about these proposed changes in the rules relating to capital gains tax on the sale of business properties. Can you tell me more. What are the proposed changes? And how might they affect me?


In his pre-Budget speech in October last year, the Chancellor, Alistair Darling, announced that he intended to radically overhaul the method of calculating capital gains tax on the disposal of certain assets. These included business properties such as GP surgeries. The aim behind the changes was firstly to simplify the tax as it had become extremely complicated and secondly to satisfy the public pressure to ensure Private Equity investors paid an increased amount of tax.

That sounds sensible but why should there be such a controversy about the proposed changes?

Most professional commentators would agree that simplification was needed. What they disagreed with was that by targeting the Private Equity Investors the Chancellor also increased substantially the anticipated tax liability of many small businesses and employees in share option schemes. This went against his predecessor's stated aim in the previous 10 years. This was to promote entrepreneurs, small businesses and employee-shared ownership.

So that explains why Trade Unions, small business representatives and the BMA have been actively lobbying the Chancellor. Has he taken any notice?

Yes he has, and he recently announced new measures to supplement his initial proposals aimed at reducing the impact on smaller businesses and other groups.

What will these measures be known as?

Mr Darling introduced what he called a new capital gains ‘entrepreneurs' relief'.

That doesn't sound as if it relates to me. Will GP's benefit from these revised proposals?

The individuals most affected by the proposals were the small business owners who have perhaps developed successful businesses over many years and therefore the relief was ‘branded' with them in mind. However, the relief is available in respect of all or part of a business along with other situations and therefore a GP selling their share of a surgery should be entitled to the relief.

How does the relief work?

The first £1 million of gains that qualify for the relief will be taxed at an effective rate of 10%. This is a lifetime allowance and therefore should be considered in the context of all qualifying disposals that you may have. This is an improvement on the initial proposals and for assets acquired after April 1998, will result in a similar amount of Capital Gains Tax being paid as under the old regime. However, the relief known as indexation will still be lost. Therefore, depending on the ownership length of the qualifying asset, you may still be worse off when compared to the old Capital Gains Tax regime. Your accountant will be able to advise you on your specific circumstances.

What is the criteria to qualify for the relief?

Your accountant will be able to discuss the qualifying criteria in detail which is broadly in line with an older and now defunct form of capital gains tax relief know as ‘retirement relief'. The draft legislation has not been published yet. But it is thought that you will not have to be in the process of retiring from the business. And the period of time required to qualify for the relief will be short - e.g. one year

I own a couple of properties. Will these be covered?

This depends on the type of properties you own. Furnished holiday letting properties already experience a favourable tax position as they are regarded as a business. It is expected that the sale of a furnished holiday letting property will satisfy the criteria. Any qualifying disposals of this nature will count towards your £1 million lifetime allowance.

Buy to let properties will not benefit from ‘entrepreneurs' relief' but many individuals will benefit from the capital gains tax simplification measures. This is as a result of a new rate of 18% being charged on the gain which in many cases is a lower rate than under the old regime.

Is it worth using my spouse to transfer some or my entire share of the surgery?

Probably not, but this should be discussed with your accountant. For starters you will require your other partner's approval, and generally this will not be forthcoming. This is because there is always the risk of some matrimonial dispute arising which would affect future ownership.

So what would you advise me to do?

Even if I knew all the finer points of your affairs I would stress that you discuss matters with your accountant. The new ‘entrepreneurs' relief' is certainly welcome for GP's and should ensure that GP's are not significantly disadvantaged by the simplified regime.

Ian Tongue is a partner at Sandison Easson and Co, a specialist medical chartered accountant

Accounts

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