Tax Planning for Doctors & Dentists
This month Michael Lansdell, from Lansdell & Rose Chartered Accountants, talks about how it could be beneficial for you to put your practice property in a pension. It is a complex area of tax planning, that requires specific advice.
The views expressed in this article are specifically those of Lansdell & Rose Accountants.
Do you own your practice property?
If you own your practice property, have you considered owning it within a pension trust? This has been possible for many years although, as it is a fairly complex area of tax planning, it isn’t something everyone will have heard of as an option.
Specialist advice is required from an accountant to ensure the pros outweigh the cons, for your own situation as it isn’t a case of “one size fits all”.
However, when done correctly, there can be great rewards for dental and medical practice owners.
What are SIPP’s and SASS’s?
Not all types of pension fund will accept property, and in fact most won’t accept commercial property as a valid investment.
Self Invested Personal Pensions, known as a SIPPs and Small Self-Administered Schemes, known as SASS’s, can accommodate commercial property.
The benefits of putting your practice into a pension
The main benefit of putting your property into a pension scheme, is like other pension assets, growth is ordinarily, tax-free.
Another advantage is that the property will also be sheltered from Capital Gains Tax upon sale, when it is held within a pension.
Also, rental income, which is paid as a cost from the practice, can build up in the pension giving an enhanced pension fund to draw down in retirement.
Other considerations
There are of course a number of other things to consider.
Upon sale, the cash proceeds of the property must remain in the pension. In the same manner, accumulated rental income received, must also remain in the pension.
These factors can be viewed as a benefit or a downside, which is why advice is required to determine your retirement plans.
Withdrawals from your pension, through retirement, will be subject to the same rules as regular pensions. Therefore income tax will be applied at your tax rate for capital drawn-down. The Lifetime Allowance also applies.
If you already own the property, as part of the transaction to “get” the property into the pension, Capital Gains Tax (CGT) is likely to be applied, for any gain. Depending on the gain and other factors, this could be whittled down but it is something that needs to be factored in.
For example, if you purchased the property for £100,000 and it is now worth £250,000, then there is a gain of £150,000 that would be taxable, minus the annual CGT exemption of £11,100 and disposal and acquisition costs.
Stamp Duty would also be applicable on the “purchase” by the pension, so this cost needs to be taken into account.
Summary of key points
- Property growth within a pension is (generally) tax-free
- Capital Gains Tax is exempt when selling a property held in a pension fund
- Rental income built up within the pension fund is tax-free
- Cash proceeds of selling the property, when held in a pension, must remain in the pension
- Accumulated rental income also must remain in the pension until retirement
- Withdrawals from the pension are subject to income tax in the same way as a regular pension
- The Lifetime Allowance also needs to be taken into account
- CGT is likely chargeable on any gain you have made on the property before transferring to the pension
- Stamp Duty will also be payable by the pension on “purchase” of the property
As you can see, placing your dental or medical practice property into a SIPP or SASS requires careful consideration.
Goals need to be long-term and in line with your overall retirement plan.
A specialist accountant and financial adviser can work together to make this transaction happen for you, if the benefits are worthwhile for your situation.
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