In this article, we outline the main budgetary changes and explores their potential impact, helping medics make informed financial decisions. Whether you’re considering the timing of a property sale, planning for retirement, or evaluating your tax planning strategy, these insights are tailored to help you to understand the ever changing financial climate.
When we speak with medics we often talk about medical-related income and NHS-pension related issues (which seems obvious, doesn’t it?!). But peoples’ lives, and finances, aren’t just limited to their work, particularly nowadays. More and more people are looking to passive, or semi-passive income, particularly in the form of investments.
While the recent Labour budget hasn’t directly* changed taxation for individual ‘workers’ it has changed the landscape for investments. So below are some considerations for our medical clients, following Ms Reeve’s first budget.
*(Feel free to read between the lines, or italics so to speak, as changes that affect employers will inevitably have an effect on those who work for them.)
Changes to Capital Gains Tax (CGT)
General rate changes
CGT is charged on the gains made on sale of ‘capital’ assets. This will commonly be assets such as land and building (which are not completely exempt as a principle private residence) and stocks and shares (which are not within an ISA wrapper), for example.
A gain is (broadly) the difference between the sale proceeds and the purchase price (with some allowance for specific related costs). It’s essential the ‘profit’ on the asset.
Each year, an individual is entitled to an ‘annual exempt amount’ for CGT purposes which can be deducted from the ‘gain’ to arrive at the taxable amount. At the time of writing, the annual exempt amount is £3,000 per individual, per tax year.
Taxable gains in excess of the annual exempt amount are then charged to CGT. Up to 30 October 2024 the CGT rates were 10% for a ‘basic rate’ taxpayer, or 20% for a ‘higher’ or ‘additional rate’ taxpayer on most gains. These levels were increased to 18% for a ‘basic rate’ taxpayer, and 24% for ‘higher’ and ‘additional rate’ taxpayers where the gains related to residential property.
From 31 October the tax rates have been aligned. So disposals (of any chargeable asset) will either be charged at 18% or 24%. This means that the cost of selling an asset which does not comprise residential property just became more, and the net proceeds in hand will be less.
Business Asset Disposal Relief (BADR)
Historically BADR has been a very generous relief which has been available to business owners on the sale of their businesses, or specific related disposals on the sale of their business.
In the context of medics, we often see BADR coming into play when a partner retires from their practice. A partner can’t sell goodwill attaching to a practice, but a property-owning partner who withdraws from the business can have an ‘associated disposal’ of their property share on retirement.
Previously, BADR meant that qualifying gains (let’s say the practice premises for this example) would be taxed at a flat rate of only 10% (up to a lifetime limit of £1,000,000).
Following the budget, from 6 April 2025 gains which qualify for BADR will be taxed at 14% up to the same lifetime limit, and from 6 April 2026 the applicable rate will be 18%.
While the ultimate rate of 18% is still better than the (current) highest CGT rate of 24%, these changes will mean that qualifying property owners pay a lot more in CGT. Worth factoring into your tax planning when considering the timing of retirement and disposals.
If you have any questions or would like to discuss Capital Gains Tax or Tax planning, get in touch with our team of specialist medical accountants on 01424 730345 or email doctors@honeybarrett.co.uk and they will be happy to help.
