Tax planning for medical professionals, especially doctors, is a pivotal component of astute financial management. With the adept use of a limited company structure, those in the medical field can substantially amplify their tax advantages.
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Dental & Medical Financial Services, in collaboration with Nichols Medical Accountants, sheds light on the tactics doctors can adopt to diminish their tax burdens and amplify their financial gains.
Dividing Income Among Family Members:
If you’re a medical professional with private income operating through a limited company, a strategic approach to tax planning for doctors involves distributing your income among family members. This is especially beneficial if they are non-taxpayers or fall under a lower tax bracket than you. Such distribution can be achieved by paying dividends, salaries, or pension contributions on their behalf.
However, always consult with a professional to ensure compliance with income tax, corporation tax, pension, and company act regulations.
Benefits of Dividends for Spouses:
To allocate a dividend to your spouse, you’ll first need to transfer company shares to them. Fortunately, due to the spousal exemption, there’s no capital gains tax involved. However, transferring shares to other family members might incur a capital gains tax. Always seek expert advice when making such transfers.
Remember, transferring shares can grant the recipient a degree of control over your company. A landmark tax case, “Arctic systems“, set a precedent, allowing husbands and wives to receive dividends from each other’s companies, even if only one of them is generating income. HMRC has agreed to this ruling, and it is now accepted as uncontroversial mainstream tax.
Salary vs. Pension Contributions for Spouses:
If your spouse can contribute to your business, consider paying them a salary or making a pension contribution. These methods don’t require making them shareholders, allowing you to maintain complete control over the company.
If immediate cash access is needed and your spouse is a low earner, a salary might be the best option. However, if they haven’t utilised their annual pension allowance and you can defer cash access until retirement, pension contributions become an attractive tax-saving strategy.
Both of these options are deductible for Corporation Tax.
Tax Advantages of Paying Your Children:
For high-earning couples, considering the entire family for tax planning for doctors can be beneficial, especially if you have adult children in education. This strategy effectively utilises their tax-free allowance before they secure employment. To pay dividends to your children, they must hold company shares. While there’s no Capital Gains Tax exemption for gifting shares to children, certain conditions might negate this liability.
Ensure shareholders are at least 18 years old. To retain company control, consider granting them alphabet shares without voting rights. These shares offer flexibility, allowing varied dividend payments based on individual earnings.
Paying a salary or pension contribution is also an option, but they must contribute to the company’s operations.
Effective tax planning for doctors is crucial for optimising earnings and securing a stable financial future. By understanding and implementing the strategies mentioned above, medical professionals can navigate the complexities of taxation.
For personalised tax planning advice tailored to your unique situation, contact a member of Nichols Medical Accountants team today.