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Personal finance - tax planning

In the second feature in our series on personal finance, accountant Bob Senior looks at how GPs can cut the tax they pay

In the second feature in our series on personal finance, accountant Bob Senior looks at how GPs can cut the tax they pay

Most people agree that the government needs to raise money from the population by means of taxation to pay for vital services. Most people also feel that they are paying more than their fair share! GPs are no different to anyone else in this. And since they generally pay their income tax in two large cheques in January and July feel the pain particularly acutely.

There is no avoiding the fact that the more you earn the more tax you will pay. However that does not mean there is no point trying to minimise the tax bill where you can.

• If your spouse is a non or basic rate taxpayer then any savings should be put in their name to avoid having to pay 40% tax on any income from it.

• If you are both higher rate taxpayers, consider using an offset type mortgage to hold your monthly tax savings, rather than simply putting the money aside in a savings account until you write your half yearly tax cheques.

• Make sure that any underpayments of Superannuation are collected by the PCT before the end of March each year. If necessary send them a cheque, since tax relief on Superannuation is given in the tax year in which the payment is actually made.

The Chancellor's recent pre-budget statement introduced significant changes to Capital Gains Tax, which will impact on those GPs that own their own surgeries. At the moment GP surgeries are classed as business assets, and as such benefit from a 75% discount for Capital Gains Tax purposes once they have been owned for two complete years.

In addition to that many GPs currently approaching retirement will have purchased their interest in the surgery in the 1980's and so will be entitled to an indexation allowance which is disappearing. The end result is that a GP retiring on the 31st March 2008, selling their interest in the surgery for £200,000 having bought it for £25,000 in 1982 could currently face a capital gains tax bill for approximately £11,200. Making the same sale a week later, after the 6th April, would see the tax bill increase to nearly £30,000.

That potential impact is making many GPs consider bringing forward their retirement date to before 5th April 2008. That may indeed turn out to be a sensible action. However current advice is not to panic, but rather to wait until the full drafted documentation is released by the Treasury in the next month or so. Most commentators believe that the announcements were rushed and that there may be important changes made before the final rules are released.

Inheritance Tax also saw major changes in the pre-budget statement. This allowed the estate of a surviving spouse or civil partner to use both that individual's own IHT nil rate band as well as any unused proportion of the nil rate band from their deceased spouse/civil partner against the value of their estate. This change brings any "nil rate band trusts" you may have in your will into question. If you have such a clause in your will it may be worth reviewing – but bear in mind that Trusts such as this do more than simply save IHT, and that a will can be changed under a deed of variation up to two years after death.

Often overlooked is the fact that you can make total gifts up to the IHT nil rate band – currently £300,000. Moreover if you survive seven years the clock resets and you get another complete nil rate band. It is also worth remembering that you can still make regular gifts out of income without limit. If therefore you have more income than you need, you should consider giving it away now rather than letting it gather dust in a savings account paying low rates of interest. Money given to children now is worth a lot more to them than waiting to get it when you are 85 and they are 50 – particularly if the Chancellor grabs 40% of it when you die!

Bob Senior is vice-chair of the Association of Independent Specialist Medical Accountants and director of medical services at Tenon, the UK's third largest medical accountant

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