Beyond the Sugar Tax: Savings and Investment News for Doctors from the Budget

On Wednesday 16 March the Chancellor made his Budget announcement.  His plans for a sugar tax and for all schools to become academies have captured the headlines.  However, announcements about personal tax rates, allowances and tax-free savings may have just as much, if not more, of an impact on doctors’ day to day lives, pay packets and financial plans.  Below, we outline the need-to-know points for doctors from the Budget.

For doctors age under 40 who are saving for the long term

The government is introducing a Lifetime ISA from April 2017.  Savers must be under 40 to open a Lifetime ISA and can contribute until the age of 50.  Contributions of up to £4,000 a year are allowed, and the government will add a 25% bonus. 

There are restrictions on accessing the money: it must be used either to buy a first home (with a buying price of less than £450,000) or for retirement, from the age of 60.  If a withdrawal is requested at any other time the government bonus will be lost and a 5% charge will also apply.

For doctors of any age who are saving for the long term

The ISA allowance, which is £15,240 for 2015/16 and 2016/17, is increasing to £20,000 from April 2017.  The allowance can be split between Cash, Stocks & Shares, Innovative Finance and Help to Buy or Lifetime ISAs (if eligible). 

For doctors who are saving for retirement

As promised in advance of the Budget, pension rules and regulations have been left alone on this occasion.  Planned reductions to the pension Lifetime Allowance (from £1.25m to £1m) and Annual Allowance (from £40,000 to £10,000 for high earners) will be going ahead on 6 April 2016.  Pension tax relief, which had been considered to be under threat, has been left unchanged.

The only real point of note is the introduction of the Lifetime ISA (see above) as a potential competitor to personal pensions.

For doctors with capital gains (e.g. investments that have made a profit)

The Chancellor announced that the rate of Capital Gains Tax (CGT) will reduce from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers from 6 April 2016.  Note this change comes into effect fairly shortly. 

A key point to note is an 8% surcharge will apply for gains from property sales where the property is not the main residence (which is exempt from CGT), effectively undoing the reduction.  The government’s reasoning for this surcharge is to provide an incentive to invest in companies over property.

There is an annual exemption of £11,100 before CGT applies.  For gains in excess of the annual exemption, the tax bill will be lower if realised on or after 6 April 2016 due to the reduction in rates.

For doctors who have income from self-employment

The news for the self-employed is that Class 2 National Insurance contributions are to be abolished from April 2018.  From then on, only Class 4 National Insurance contributions will need to be paid in respect of income from self-employment.

For all income tax payers

The government announced that the Personal Allowance – the amount of income that can be received before tax becomes payable – will continue to increase, as will the threshold at which higher rate tax becomes payable.  The current and future rates are shown in the table below.

Tax Year

Personal Allowance

Higher Rate Threshold

2015/16

£10,600

£42,385

2016/17

£11,000

£43,000

2017/18

£11,500

£45,000

We hope this summary has been useful.  If you would like to discuss your personal tax and financial planning position in detail please do not hesitate to contact Richard Higgs on 0117 966 5699 or richard.higgs@wealthwestmedical.co.uk.

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