Chancellor George Osborne presented his Autumn Statement on Wednesday 03 December 2014.
Having worked our way through the transcript, the big winners appear to be those looking to purchase a new home. Osborne has introduced a tiered stamp duty regime which is expected to benefit 98% of house buyers.
There were no material changes to the standard tax bands or rates however the entrepreneurs’ relief legislation has been amended which will effectively prevent doctors from transferring goodwill from a sole trade to a limited company at the reduced rate of capital gains tax.
Here are the key tax issues which we believe will impact upon many doctors moving into 2015:
Stamp Duty
This was the most significant point to take from the Autumn Statement. With immediate effect, stamp duty will be charged on residential property as follows:
0% paid on the first £125,000,
2% paid on the portion up to £250,000,
5% paid on the portion up to £925,000,
10% paid on the portion up to £1,500,000 and
12% paid on amounts over and above £1,500,000.
Entrepreneurs’ Relief
Entrepreneurs will no longer be eligible to claim the reduced rate of capital gains tax when they transfer goodwill from their sole trade to their limited company at incorporation. Instead of paying 10% capital gains tax, doctors will face 28%. Corporation tax relief will also be restricted in respect of payments for intangible assets.
Tax Free Allowances
With effect from 06 April 2015, the Personal Tax Allowance will increase to £10,600 (previously £10,000). One pound of Personal Allowance will be removed for every £2 of income earned above £100,000. The Personal Allowance will be entirely lost when total personal income (net of private pension contributions) reaches £121,200. The real rate of tax on earnings between £100,000 and £121,200 will be 61%. As previous, doctors with an NHS salary and private earnings are likely to consider alternative trading vehicles, i.e. limited companies, in order to limit their exposure to the 61% tax rate.
Higher Rate Tax Band
The 40% tax band has been raised to £42,385 from £41,865. This very small increase will enable tax payers to earn an additional £520 at 20% before the higher rate is charged. The 45% band remains set at £150,000. Doctors are unlikely to feel the effect of this band adjustment.
ISA’s
ISA thresholds increase from £15,000 to £15,240 with effect from 06 April 2015. As explained in previous posts, the ISA may consist of entirely cash, entirely stocks and shares or a mixture of both.
Spouses will be able to inherit their partners’ ISA’s tax free upon their death.
Inheritance Tax
When someone dies, their husband or wife will be able to inherit their ISA and pension tax free.
Enveloped Dwellings
With effect from 01 April 2015, residential properties owned by limited companies with a value of over £2,000,000 will face an increased Annual Tax on Enveloped Dwellings (ATED). The rate is to increase by 50% above inflation. Properties with a value of between £2,000,000 and £5,000,000 will pay an ATED charge of £23,350.
Corporation Taxes
The corporation tax rate will be charged at 20% with effect from April 2015 regardless of profit.
Resident Basis Charge
Resident non-domiciles who wish to be taxed on the remittance basis will face annual charges of between £30,000 and £90,000 depending on their period of residence.