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Selling the pharmacy or nearing retirement?

In his last article for the Scottish Pharmacist magazine, Mark Tenby, Audit & Accounts Director, examined the key considerations when buying a pharmacy >more. In the latest edition, August/September 2017, he takes a look at the other side, with a specific focus on the tax impacts on the seller. Healthcare front page

With a little planning and foresight the seller or retiree can prevent an unexpected demand from the taxman requesting a larger share of the proceeds than was probably necessary.

A key issue for pharmacy owners planning to retire or sell a business centres is how best they plan their tax liability, specifically Capital Gains Tax (CGT) and Inheritance Tax (IHT).

In our experience it is never too early to consider financial planning and whilst ‘younger’ pharmacists may not place this at the top of the agenda right now, the reality is that planning at an early stage can be structured to help with current tax liabilities as well as those on retirement or sale.  

Don’t hand the tax man a blank cheque

Both CGT and IHT need to be considered carefully as part of the planning exercise – without appropriate planning for these two very real scenarios, pharmacy owners might find themselves or their ‘estate’, handing a blank cheque to HMRC.

CGT is payable when you sell an asset such as a retail outlet or a pharmacy business when there has been an increase in its value. From April 2016, CGT rates on most gains reduced from 18% to 10% for basic rate tax payers and from 28% to 20% for higher rate tax payers. There are exceptions such as a gain from the sale of a residential property that does not qualify for full principal private residence relief – these continue to be taxed at 18%/28%. But, Entrepreneurs Relief can be claimed on certain business asset disposals so that a rate of 10% is payable. These rates are after utilising the Annual Exempt Amount (currently £11,300) which is available to each taxpayer.

You can also offset capital gains on successful investments with losses from investments that haven’t worked out so well. Losses can also be carried forward to offset gains in future tax years.

A Will is a very effective tax planning tool

Moreover, a priority for any pharmacy owner should be the setting up of a Will as the first step in any estate-planning exercise, not only to make certain that matters are dealt with in a tax-efficient way but also to ensure that your exact wishes are carried out.Maco Icons6

Having a Will means you avoid relying on the intestacy rules that come into play where there is no Will. Effectively the law decides what happens to the estate - remember the point above about writing a blank cheque to the tax man! This can lead to financial anxiety for the surviving spouse/family along with a possible immediate charge to IHT.

Consider setting up a trust

If you don’t want to give directly, you could consider a trust. With a little planning, you can transfer asset(s) into a trust with minimal CGT or IHT consequences and it can also reduce your taxable estate. There are, however, some additional tax charges and costs related to trusts that may be applicable. If you are interested in setting up a trust, you should have a conversation with your accountant/lawyer first to ensure that it will meet your requirements.

Know your allowances and reliefs

Everyone has an IHT Nil Rate Band (NRB) of £325,000 and this will remain frozen until 2020/21. In addition to the main NRB, the Residence Nil Rate (RNRB) came into force in April 2017.

The maximum RNRB allowance this tax year will be £100,000 rising by £25,000 in each of the next three tax years. This will effectively raise the IHT free allowance to £500,000 per person. Where married couples jointly own a family home and wish to leave this to their children, the total IHT exemption will rise to £1m by 2020/21.

Business Property Relief can, with careful planning, potentially remove the full value of a pharmacy business – sole trader, partnership, or shares in private company from being subject to an IHT charge either via lifetime gifts or on death. You can gift as much cash as you like during your lifetime by way of what is referred to as a ‘potentially exempt transfer’.

Acts of benevolence have a double impact

Gifting income producing assets to your children, such as shares in the family business or an investment property, is also a good way of reducing the overall family income tax bill whilst at the same time conducting succession planning. Do take care to ensure there are no CGT or IHT liabilities that crystallise on the gift/transfer.

These areas can appear to be overly complex, but with a bit of careful planning it is possible to mitigate your exposure to unwanted CGT/IHT liabilities. The word is always to seek professional advice.

If you are contemplating a purchase, sale or retirement, please get in touch and Mark Tenby, Director, Martin Aitken & Co, will talk you through the process so that you are fully aware of what's involved.

This article appeared the the August edition of Scottish Pharmacist. To read Mark's full article click here.

For more infomration on the service we provide to practice owners, click on the links below: Charts 01

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