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Tax Challenges for UK Healthcare Property Investors

Published by Prerana
Published Date: May 6, 2024

Understanding the taxation and accounting provisions can be challenging for medical professionals. This article aims to simplify that challenge and help healthcare professionals optimise their taxes. Additionally, it provides information on the tax implications of various property ownership structures to help healthcare professionals make informed decisions.

Let’s Talk About Property Ownership Structures

As a healthcare professional looking to invest in property, it is important to understand the three main ownership structures.

Sole Ownership

When it comes to owning a property, sole ownership offers straightforwardness and ease of control, as the entire asset is under the responsibility of a single healthcare professional. However, it's important to consider the tax implications carefully.

  • Income Tax - The rental income generated from the property is subject to Income Tax, which means that the individual owner will have to pay the prevailing rates. The Income Tax rate varies according to the band in which your annual income lies.

Band

Annual Income

Tax Rate

Personal Allowance

Up to £12,570

0%

Basic Rate

£12,571 to £50,270

20%

Higher Rate

£50,271 to £125,140

40%

Additional Rate

Over £125,140

45%

  • Capital Gains Tax (CGT) - Capital Gains Tax (CGT) may come into play when the property is sold, affecting the overall profitability of the investment. The annual exemption amount for individuals is £3,000 for the Tax Year 2024/25. The Capital Gains Tax rate is 18% to 24% for individuals on residential property gains.
  • Tax Rate Disadvantage - Furthermore, unlike corporations, sole proprietors are not entitled to preferential Corporation Tax rates, which puts them at a disadvantage.
  • Therefore, before deciding on sole ownership, healthcare professionals should weigh the pros and cons of this option based on their financial situation and goals.

Partnership

Collaborative ventures can be an advantageous way for healthcare professionals to combine their resources and jointly own properties. However, it is important to understand the complexities of tax implications that come with such partnerships.

Tax Challenges for UK Healthcare Property Investor
  •  Income Sharing - The profits earned through property rentals are distributed among the partners based on the partnership agreement. Each partner is then responsible for paying taxes on their share of the rental income in accordance with their individual income tax rate.
  • CGT Sharing - Similarly, the Capital Gains Tax (CGT) that arises from the disposal of the property is divided among the partners as per the terms of the partnership agreement.
  • Complexity - Setting up a profit-sharing arrangement and maintaining accurate records requires meticulous attention to detail and documentation. It is crucial to ensure that all aspects of the partnership agreement are carefully considered and thoroughly documented to avoid any potential tax issues.

Limited Liability Companies (LLCs)

Limited Liability Companies (LLCs) offer a unique legal structure that creates a separate legal entity from the individual owners. This legal separation provides limited liability protection to the owners while also offering specific tax benefits.

  • Corporation Tax - One such tax benefit is the application of Corporation Tax to rental profits, which can potentially save money compared to income tax rates. The Corporation Tax rate also depends on the amount of profit that your company can generate.

Rate

Profits

Tax Rate

Small profits rate

Under £50,000

19%

Main rate

£50,000 to £250,000

25%

  • Annual Tax on Enveloped Dwellings (ATED) - However, high-value properties exceeding £500,000 may be subject to the Annual Tax on Enveloped Dwellings (ATED), which requires careful financial planning. Here are the chargeable amounts of ATED payable for the tax year 2024/25.

Property Value

Annual Charge

More than £50,000 to £1 million

£4,400

More than £1 million to £2 million

£9,000

More than £2 million to £5 million

£30,550

More than £5 million to £10 million

£71,500

More than £10 million to £20 million

£143,550

More than £20 million

£287,500

  • Corporation Tax on Gains - Additionally, property sales within LLCs are subject to Corporation Tax on Gains, which can significantly impact overall profitability.

However, it is worth noting that LLCs can also introduce administrative complexities, with increased compliance requirements and administrative burdens compared to other business structures.

Understanding the pros and cons of each property ownership structure is significant if you are a medical professional considering investing in a health clinic.

How Can Healthcare Professionals Optimise Their Taxes?

In the UK, there are certain expenses that healthcare professionals can claim as tax-deductible based on their profession. These may include travel expenses, professional fees, medical subscriptions, and other related expenses.

Tax Challenges for UK Healthcare Property Investor
  • Subscription and Membership Fees – Fees from professional bodies such as the Royal College, the British Medical Association, and the General Medical Council can be tax-deductible expenses. Doctors who pay for scrubs, stethoscopes, and other medical equipment from their own income can also claim tax relief.
  • Exams and Training – HMRC claims exams and training as tax relief in some cases however, claiming them can be quite complicated.
  • Travel Costs – If you travel for work purposes other than your usual route, you might be able to claim tax relief on those expenses. The travel expenses can range from parking charges to accommodation.

In addition to claiming tax relief, you can take advantage of available tax allowances in the UK. These include Individual Savings Accounts, Capital Gains Tax, Inheritance Tax Planning, and Personal Savings Allowances.

Conclusion

Navigating the tax implications of property ownership structures is crucial for healthcare professionals in the UK.

By understanding the tax benefits and aligning their ownership choices with their financial goals, healthcare practitioners can optimise their tax situation and maximise the profitability of their investments. Whether they opt for sole ownership, partnerships, or Limited Liability Companies (LLCs), each structure presents its own set of fiscal considerations and benefits.

With careful consideration, professional help, and informed decision-making, healthcare professionals can ensure they are making the most advantageous choices for their tax planning strategies. This will allow them to focus on their primary goal of providing quality care to their patients.

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