Selling the pharmacy or nearing retirement?

Selling the pharmacy or nearing retirement? Get your tax ducks in a rowGet your ducks in a row

One of the key issues for pharmacy owners planning to retire or sell the business, centres on how best they plan their tax liability, specifically Capital Gains Tax (CGT) and Inheritance Tax (IHT).

With a little planning and foresight the seller or retiree can prevent a rather unexpected demand from the tax man dropping through the letterbox requesting a larger share of the proceeds than was probably necessary.

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.

CGT is payable when you sell an asset, for example, a pharmacy business, and there has been an increase in the value of the asset. Currently, CGT rates on most gains are 10% for basic rate tax payers and 20% for higher rate tax payers.

CGT liabilities can be reduced by utilising the tax allowances to which you are entitled and by careful planning of your CGT position throughout your life. If you leave it too late to consider your CGT liabilities, especially if you are planning to sell investments made many years ago, it can be quite a shock to realise how large the CGT liability can be.

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

The maximum RNRB allowance this tax year will be £125,000 rising by £25,000 in each of the next two 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.MACO TPL coin stack purple

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.

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. There are more tax saving ideas in our annual Tax Planning for Life guide that can be found here >read more

Thinking of selling and wish to get your tax ducks lined up in advance? Drop me an email and I will talk you through your options – and potential savings.

 Article first published in Scottish Pharmacist August 2018