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What the budget means for GPs

Accountant Ian Tongue looks at the parts of the recent Budget that have particular relevance to general practice

Accountant Ian Tongue looks at the parts of the recent Budget that have particular relevance to general practice

In Alistair Darling's first Budget, many of the proposals from the pre-Budget report were confirmed. Several could have a significant impact on GPs.

Capital gains tax

The capital gains tax simplification measures for individuals announced last year came into force on 6 April.

The Government has introduced a new form of capital gains tax relief known as entrepreneurs' relief. This is designed to soften the blow of the new measures for individuals who have owned businesses for many years. Entrepreneurs' relief should be available for surgery-owning GPs who are retiring or leaving a practice. Your accountant will be able to discuss this further with you.

The key changes are:

• calculation of capital gains is simplified

• single tax rate of 18% is introduced

• entrepreneurs' relief becomes available for certain disposals.

The new entrepreneurs' relief allows the first £1m of gains arising on certain disposals to be charged to capital gains tax at an effective rate of 10%. However, for individuals who have owned assets prior to April 1998 that qualify for the relief, it is likely that you will still be worse off than under the old scheme. Therefore, if you have owned a surgery for many years and are considering selling it after 6 April, expect to be worse off under the new regime even if the entrepreneurs' relief is available.

The £1m limit is a lifetime limit affecting disposals from 6 April 2008.

The main area for GPs where entrepreneurs' relief may be available is upon retirement or leaving a surgery.

In this scenario, the GP will be ceasing involvement in the business and therefore should be entitled to relief on assets used by the partnership or business – for instance a share of the surgery.

Based on the initial guidance issued, it is unlikely that the following disposals will qualify for the relief:

• disposal of business premises – for instance, the surgery – where the individual continues to be involved in the business

• disposal of the surgery as part of a relocation into leased premises where the existing business is continuing.

If you are approaching retirement or considering a move into leased premises, these restrictions might make your plans more expensive, and you should discuss the matter further with your accountant.

Where entrepreneurs' relief is available, the timing of the disposal is extremely important. Again, your accountant will be able to discuss this further with you.

Domicile

A person's domicile has traditionally been a political hot potato. It has always appeared unfair that wealthy individuals who live and work in the UK do not pay UK income tax on all of their earnings or gains.

Until now, individuals who were non-UK domiciled, or not ordinarily resident in the UK, were taxed only on worldwide income or gains if these gains were brought into, or remitted, into the UK (known as the remittance basis). The Government's revised solution is to stop non-UK domiciled individuals automatically enjoying remittance basis.

With more doctors coming in from other countries, this is likely to affect a significant number of GPs. For example, it would affect GPs who had businesses, properties or other assets outside the UK but who had lived in the UK for many years.

There are two choices for these non-UK domiciled individuals who have income or gains outside the UK in excess of £2,000 and who have spent at least seven of the last 10 years in the UK:

• they can either declare their worldwide income or gains and pay the relevant amount of UK income tax

• or they can pay a £30,000 tax charge and continue adopting the remittance basis (this is in addition to any tax due on income or gains actually remitted in the year).

Depending on the country of origin, you would receive credit for any foreign tax paid up to a maximum of the UK tax due on the income or gains.

Note that holding dual nationality or a UK passport does not mean that you are UK domiciled. Determining domicile can be complex but usually follows that of the father of the individual rather than the place of birth.

Capital allowances

Capital allowances are the tax form of depreciation. They are allowed as a deduction against accounting profit in arriving at your taxable profit. Changes to capital allowances come into effect this week for individuals and partnerships.

The main changes include the following.

• The introduction of an annual investment allowance, which gives 100% relief against your taxable income for the first £50,000 of capital expenditure each year (there are certain exceptions, including cars). This new allowance is instead of the current 50% first year allowance.

• A reduction in allowances for plant and machinery from 25% to 20%.

• Continuation of the 100% first year allowances for expenditure on cars with low CO2 emissions until 31 March 2013, but with a maximum CO2 level of 110g/km (reduced from 120g/km)

• Introduction of a new rate of 10% for features integral to a building – for example, a lift in the surgery.

It should be noted that the annual investment allowance is pro rata for accounting periods that straddle 6 April 2008. Therefore, if you had a June year end, you would only receive three months or one quarter of the allowance, which is £12,500. There would, however, be an additional writing-down allowance available. Your accountant will be able to discuss this further with you.

Planning opportunities exist for maximising future relief. However, the timing of expenditure is all-important.

Cars

It was expected that there would be sweeping changes to capital allowances on vehicles, with the relief moving to an emissions-based approach. This was not announced in this Budget, but it is likely to be addressed in the near future.

However, significant changes in relation to car tax were announced. These penalise higher emission vehicles.

For 2008/9 the current 7-band system A-G will remain, with a maximum of £400 for vehicles whose emissions exceed 226g/km.

For 2009/10, the number of bandings will increase to 13 (A-M) with a maximum duty of £440 payable for vehicles with emissions in excess of 255g/km.

For 2010/1 a new ‘first-year duty' will be introduced and will be payable upon the first sale of a new vehicle. This will also be based on a 13-band scale up to a maximum of £950 (2010/1) for vehicles with emissions in excess of 255g/km.

Although the Budget contained many other announcements and changes, these are the areas most likely to have an immediate impact on GPs. Your accountant will be able to advise you further on your individual situation.

Accounts

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