Many of the tax issues facing dental professionals will be shared with other high-earning individuals in other sectors. But in our experience, there are some areas that tend to be more neglected than others by those working in a health profession.
Purchase of premises
During their working lives, dental professionals may be given the opportunity to purchase premises from which to practise, either on their own or as part of a group. One of the main points to consider is whether this should be done through joint ownership, a partnership, or a corporate structure.
Each structure has its pros and cons from a tax perspective, but ultimately, the structure should be driven by the circumstances of the individuals, rather than the tax outcome.
There is, however, one tax consideration that should be made when acquiring commercial properties (such as a dental surgery) regardless of how the premises are acquired - namely, the capital allowance position of the property (capital allowances enable tax payers to receive tax relief on capital expenditure by allowing it to be deducted against their annual taxable income).
The purpose of this article isn't to discuss the detailed rules around capital allowances, but capital allowances continue to be an overlooked area in property purchases despite the significant benefit they can provide.
In 2012 (coming into full effect from April 2014) the rules were changed for capital allowances on second hand property, whereby the vendor and acquirer must agree the part of the purchase price that is apportioned to fixtures in the building.
This is a valuable area that has become vital to consider before completion in order to preserve the acquiror's access to ongoing tax relief concerning the property. As such, the capital allowance position of the property must be agreed between the buyer and seller before the transaction completes.
IR35 (also referred to as 'Off Payroll Working') remains an ongoing issue for healthcare professionals, both from the perspective of an individual providing their services through a service company, and a practice engaging the services of an individual
From April 2017, for engagements in the public sector (where most NHS contracts will fall), it has been the responsibility of the end-user to determine whether IR35 applies in relation to its engagements with its contractors. In April 2021, after a year's delay due to the Covid pandemic, HMRC then expanded this responsibility to all medium and large private companies.
While this shouldn't have any significant effects on the dental profession, the fact that HMRC continues to expand the remit of IR35 should be taken as a sign that this will continue to be an area it focuses on. This means that compliance with the rules, and an ongoing review of existing contracts, will be more important than ever.
Inheritance tax (IHT) is affecting an increasing percentage of estates due to a general increase in the wealth of the population, coupled with the freezing of the nil rate band, which has stood at £325,000 per person since April 2009.
Although the Conservative government did stand by its election promise to increase the nil rate band to £1 million, this was achieved by adding together the nil rate bands of spouses, and then adding a further amount (the residence nil rate band, which currently stands at £175,000 for each spouse) in relation to value attributable to the couple's main residence.
However, there are rules governing whether a couple will actually benefit from the residence nil rate band, and failing to plan ahead could lead to the allowance being lost. In particular:
- care should be taken to ensure that the will of the deceased passes the property (or value from property sold before death) to their direct descendants, and not to a discretionary trust; and
- the residence nil rate band will taper for estates with a value above £2 million.
It may be stating the obvious, but high earning dental professionals - like other high earners - should monitor the value of their estates and take appropriate measures to manage any future IHT liabilities. In particular, gifts out of income in retirement, which may be possible as a result of the generous pension provision, should be considered to avoid the IHT problem increasing.
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