Autumn Statement 2016 - What It All Means For Doctors
Please find our summary of the recent (and last) Autumn Statement with updates on what it all means for doctors' finances. Please get in touch on firstname.lastname@example.org or telephone 0117 966 5699 for a complimentary appraisal of your financial and tax position.
No further changes were announced to the levels of personal allowance and tax bands announced in the Budget 2016. Therefore as previously announced, for 2017/18:
- The personal allowance (the amount of income which doctors earn before paying income tax) will be £11,500 and the higher rate tax threshold (the amount of income above which a doctor earns before paying higher rate tax of 40%) will be £45,000.
- For doctors who have an adjusted net income of above £100,000, then their personal allowance will be reduced on a £1: £2 basis, meaning any doctors earning £123,000 or above will have completely lost their personal allowance. The effective tax rate between £100,000 and £123,000 is an eye-watering 60%!
- The Government also announced that it intends to raise the personal allowance to £12,500 and the higher rate tax threshold to £50,000 by 2020.
- From 2017-18 and future years the thresholds for payment of National Insurance contributions for employers and employees will be aligned.
- Class 2 National Insurance Contributions will be abolished from April 2018 with any self-employed doctors building up their entitlement to benefits via Class 3 and Class 4 National Insurance Contributions.
Capital Gains Tax
No fresh announcements were made to Capital Gains Tax. Therefore we can assume that:
- The annual Capital Gains Tax exemption will likely to be about £11,300 (if increased in line with the Consumer Price Index). This is the amount by which doctors can make gains on selling assets such as shares or property before they have to pay any tax.
- Capital Gains Tax rates on gains above the exemption will continue at 20% (assuming the doctor is a higher rate tax payer). Remember that gains relating to sales of residential property will still attract a CGT rate of 28%.
Thankfully, pensions were only given marginal treatment in this Autumn Statement.
- The most important change was the reduction in the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000 with effect from 6th April 2017. The MPAA is triggered by one of a list of events, for example one event would be a doctor drawing an income from a Flexi Access Drawdown personal pension.
Savings and Investments
- The Government announced that the Individual Savings Account (ISA) annual subscription limit will increase from 6th April 2017. Doctors will be able to save £20,000 in their ISAs tax free and also the Junior ISA and Child Trust Fund limits have also increased to £4,128.
- A new National Savings bond with a 2.2% gross interest rate over a 3 year term will become available. The maximum investment will be £3,000.
- No changes were announced to the new system of dividend and savings income taxation introduced from 6th April 2016. By way of reminder, doctors now receive a tax free annual dividend allowance of £5,000. Above this, dividends are taxed at 32.5% (higher rate tax payer) and 38.1% (additional rate tax payer). In addition, doctors who benefit from savings income will be entitled to a Personal Savings Allowance of £500 (assuming higher rate tax payer). Doctors who are additional rate tax payers do not qualify for the PSA.
- Corporation tax will fall to 19% from April 2017 and there will be a further reduction in the rate of corporation tax to 17% in 2020. This will help doctors who have set up Ltd Companies for their private work.
- Overall, any doctor considering a Ltd Company for private work still finds the UK tax regime relatively appealing. The lowering of corporation tax rates combined with no National Insurance on dividend income (despite the increased income tax rates on dividends) still makes trading through a company an attractive choice.
Please refer to our previous articles on the changes to Stamp Duty on the purchase of second properties as well as other changes. In addition:
- As announced at Budget 2016 the Government has created 2 new income tax allowances of £1,000 each for trading and property income. Doctors with trading or property income below the level of the allowance will no longer need to declare or pay tax on that income.
- As previously announced, from April 2017, non-domiciled doctors will be deemed to be UK domiciled for all tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin.