Inheritance tax planning

For many healthcare professionals, particularly GPs, consultants, and dental practitioners, the NHS Pension Scheme is a valuable but complex asset. Frequent changes to pension tax rules, particularly those affecting the annual allowance (AA) and lifetime allowance (LTA), mean that failing to plan ahead can result in significant tax liabilities.

Beyond pensions, healthcare professionals also face property tax, employment tax, and inheritance tax issues—many of which are shared by high earners but have additional layers of complexity in the medical sector.

In today’s Shipleys Tax article we take a brief look at the current tax risks healthcare professionals should be aware of in 2025 and provides practical solutions to avoid unnecessary financial burdens.

…healthcare professionals also face property tax, employment tax, and inheritance tax issues—many of which are shared by high earners but have additional layers of complexity in the medical sector.

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1. NHS Pensions and the Annual Allowance Tax Trap

What is the Annual Allowance?

The Annual Allowance (AA) is the maximum amount of pension savings an individual can make each year with the benefit of tax relief. It includes contributions made by:
✔️ The individual
✔️ Their employer (NHS contributions)
✔️ Any third party

Since the NHS Pension Scheme is a defined benefit scheme, the contributions made in a tax year are irrelevant. Instead, the pension growth (pension input amount) is what matters. Any pension input exceeding the available AA is subject to tax at the individual’s marginal tax rate.

Annual Allowance in 2025

✔️ As of the 2024/25 tax year, the standard annual allowance is £60,000.
✔️ For high earners with income exceeding £260,000, a tapered annual allowance applies, reducing the available allowance down to £10,000 for those with an income above £360,000.

This means many senior doctors and consultants are still at risk of excess tax charges if their pension growth exceeds their available annual allowance.

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Case Study: Dr Sara – A GP Partner and the Annual Allowance Tax Charge

Dr Sara is a GP partner with taxable earnings of £180,000 and superannuable NHS pensionable pay of £148,000 in 2024/25.

Her NHS Pension Contributions:

✔️ Employee contribution tier rate: 13.5%
✔️ Employer contribution rate: 20.6% (+0.08% admin fee by PCSE)

Dr Sara receives her Annual Pension Savings Statement and finds that her pension growth (pension input amount) is £55,000.

Does Dr Sara Have a Pension Tax Charge?

✔️ Annual Allowance for 2024/25: £60,000
✔️ Dr Sara’s pension growth: £55,000

Since her pension growth is below the £60,000 limit, she does not have to pay a tax charge.

What If Her Earnings Were Higher?

If Dr Sara’s adjusted income exceeded £260,000, she would be subject to a tapered annual allowance, which could be as low as £10,000.

📌 Solution: Doctors and professionals with incomes above £260,000 should check their threshold and adjusted income levels to determine whether their annual allowance is reduced. They may need to use carry forward allowances from previous tax years to avoid tax charges.

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2. Lifetime Allowance (LTA) – Abolished, But Tax Risks Remain

The Lifetime Allowance (LTA) was abolished in April 2024, meaning there is no longer a limit on how much pension savings can be accumulated without triggering a special tax charge.

However, this does not mean pensions are tax-free:
✔️ When withdrawing pension benefits, the amount will be taxed at the individual’s marginal income tax rate.
✔️ Larger pension pots may push retirees into higher tax bands.
✔️ The structure of withdrawals now plays a crucial role in minimising tax liability.

A Freedom of Information request by Quilter found that before the abolition of the LTA, over 400 NHS doctors paid £11m in LTA tax charges.

📌 Solution: Doctors planning for retirement must now focus on how to withdraw pension income tax-efficiently rather than worrying about exceeding a lifetime limit.

Doctors planning for retirement must now focus on how to withdraw pension income tax-efficiently rather than worrying about exceeding a lifetime limit.

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3. Other Tax Issues Facing Healthcare Professionals in 2025

A. Property Tax: Owning a Private Practice or Rental Property

Many GPs and consultants invest in private medical premises or buy-to-let properties, but this can trigger:
📌 Higher Stamp Duty (SDLT) – 3% surcharge on second properties.
📌 Higher Capital Gains Tax (CGT) – From April 2024, CGT on property profits is 24%.
📌 Mortgage Tax Relief Restrictions – Like everyone else, doctors can no longer deduct mortgage interest fully, increasing tax bills on rental income.

🔹 Options:
✔️ Holding property through a limited company (SPV) structure may help reduce tax.
✔️ Selling property in a lower tax year can reduce CGT liability.

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B. Employment Tax: NHS Salary vs. Private Practice Income

Many doctors earn income from multiple sources, including:

• NHS salaried work
• Private practice
• Locum work

This can create tax complications, such as:
📌 IR35 Rules for Locums – If you work through a limited company, HMRC may tax you as an employee.
📌 National Insurance (NI) Charges – Higher pensionable pay means higher NI contributions.

🔹 Solution:
✔️ Optimising earnings between salary, dividends, and pension contributions can reduce tax.
✔️ Locum doctors should check their IR35 status to avoid unexpected tax bills.

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C. Inheritance Tax (IHT) and Passing on Wealth

Doctors often have high-value estates, which means 40% Inheritance Tax (IHT) could apply on anything over:
📌 £325,000 (basic threshold)
📌 £500,000 (if including the Residence Nil-Rate Band for homeowners)

🔹 Solution:

• Gifting assets before death can reduce IHT exposure.
• Making sure pension death benefits are correctly structured can avoid unnecessary tax.
• Careful use of trusts and estate planning to mitigate IHT.

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4. How Can Doctors Avoid Unnecessary Tax Charges?

– The NHS pension annual allowance is now £60,000, reducing tax charges for many doctors.

– Pension growth, not contributions, determines tax liability – get advice to calculate your pension input correctly.

– Property and inheritance tax planning can prevent surprise tax bills later.

– Use Family Investment Companies (FICs) to reduce inheritance tax (IHT) and manage long-term wealth efficiently.

How Can Family Investment Companies (FICs) Help Doctors?

A Family Investment Company (FIC) is a private limited company set up to manage family wealth, offering a tax-efficient alternative to trusts. This is particularly relevant for doctors and healthcare professionals who:

✔️ Have significant savings or investment assets.
✔️ Want to pass down wealth efficiently to their children while retaining control.
✔️ Are concerned about 40% Inheritance Tax (IHT) liabilities on estates over £325,000 (£500,000 including the residence nil-rate band).

Benefits of a FIC for Doctors:

🔹 Tax Efficiency – Corporation tax (currently 25%) on profits may be lower than personal tax rates.
🔹 IHT Planning – Shares in the company can be gifted over time, reducing the taxable estate.
🔹 Retained Control – Unlike trusts, doctors can retain full decision-making power over investments.
🔹 Flexible Income Distribution – Dividends can be paid to family members, utilising their lower tax bands.

Example:
Dr Sara, a high-earning GP, invests £1 million in a FIC instead of holding assets personally. Over time, she gradually transfers shares to her offspring, reducing her estate’s exposure to IHT while still maintaining control over investment decisions.

Key Takeaway

FICs offer long-term tax advantages and allow doctors to protect their wealth while minimising inheritance tax risks. Setting up a FIC requires careful planning and legal structuring, so consulting a specialist tax adviser is recommended.

Final Thought: Doctors and Healthcare Professionals shouldn’t have to pay more tax than necessary. With proper planning, you can navigate the bitter pill of higher taxation.

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Need Advice on NHS Pensions and Tax?

If you’re concerned about pension tax charges, property tax, or inheritance planning, speak to a specialist medical tax adviser at SHIPLEYS TAX to explore your options.

For further assistance or queries, please contact us.

Leeds: 0113 320 9284                  Sheffield: 0114 272 4984

Email: info@shipleystax.com

Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.

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IT’S THAT TIME of the year again and the dreaded 31 January self-assessment tax return deadline is fast approaching. Missing this critical date or filing an inaccurate return can lead to hefty penalties, investigations, and stress. HM Revenue & Customs (HMRC) has advanced tools to check your finances and identify undeclared income.

In today’s Shipleys Tax note, to help you meet the deadline and avoid taxing problems, here are some basic top tips to get your tax return right and a general insight into how HMRC might verify your information.

Top Tips for Getting Your Tax Return Right

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1. File Your Tax Return on Time

This is the number one for a reason. Filing late is an automatic red flag for HMRC, and penalties start from £100, even if you owe no tax. The deadline for online submissions is 31 January 2025, so act now to avoid last-minute panic.

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2. Declare All Sources of Income

A very obvious one. Failing to report all your income is one of the most common mistakes, and HMRC has several ways to detect it. Be sure to include:

• Bank interest (onshore and offshore): Declare interest from savings accounts. Offshore institutions report account details under the Common Reporting Standard (CRS).
• Rental income: Include income from properties rented privately or via platforms like Airbnb. HMRC can track property ownership and rental activity.
• Self-employment income: Report all freelance or gig work earnings, including payments through platforms like PayPal, Etsy, or Fiverr.
• Trading gains: Include profits from share trading, forex, or cryptocurrency transactions.

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3. Avoid Common Errors

Mistakes can result in penalties or compliance checks. Common errors include:

• Incorrect personal details, like your National Insurance number.
• Miscalculations in income or expenses.
• Forgetting to sign and date paper submissions. Double-check your return or use professional services to calculate figures accurately.

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4. Include Child Benefit and Student Loan Repayments

If your income exceeds £50,000, you may need to pay the High Income Child Benefit Charge (HICBC). Similarly, ensure student loan repayments are calculated correctly, especially if you’re self-employed. HMRC shares income data with the Student Loans Company (SLC) to verify repayments.

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5. Keep Detailed Records

Accurate record-keeping is essential for a correct tax return and protects you if HMRC asks for evidence. Keep:

• Receipts for expenses.
• Tenancy agreements for rental income.
• Bank statements aligning with declared income.

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6. Check Your Tax Code

Ensure your tax code is correct, especially if you’ve changed jobs or started receiving rental or investment income. An incorrect tax code can lead to under- or overpayments.

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7. Use HMRC’s Online Tools

HMRC provides calculators for self-employment income, student loans, and expenses. Using these tools can reduce the risk of errors and make your submission smoother.

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8. Seek Professional Advice

For complex financial situations, such as rental properties, offshore accounts, or multiple income streams, consult an experienced tax adviser. Professional advice will pay for it self, ensures compliance and peace of mind.

How HMRC Can Check Your Finances

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HMRC has access to powerful tools and international data-sharing agreements to identify undeclared income and errors. Here’s how they ensure compliance:

1. The ‘Connect’ System

HMRC’s Connect system analyses vast amounts of data to identify discrepancies between tax returns and third-party information. Sources include:

• Banks and financial institutions.
• Land Registry and property records.
• Online marketplaces like eBay and Airbnb.
• Social media and advertising data for side hustles.

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2. Automatic Exchange of Information (AEOI)

Through the Common Reporting Standard (CRS), over 100 countries exchange financial data with HMRC. This includes:

• Offshore bank accounts and interest.
• Investment gains.
• Account balances and transactions.

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3. Data Matching

HMRC cross-checks data from employers, banks, and institutions to spot inconsistencies. For instance:

• Rental income is matched with property ownership records.
• Dividend payments are compared to declared investment income.

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4. Online Activity Monitoring

Platforms like Etsy, PayPal, and Airbnb are monitored for undeclared income. HMRC also investigates trading platforms for cryptocurrency or stock trading gains.

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5. Voluntary Disclosure Campaigns

HMRC runs initiatives like the Let Property Campaign and the Worldwide Disclosure Facility (WDF), encouraging taxpayers to disclose undeclared income. Those who fail to comply face investigations and penalties.

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Consequences of Getting It Wrong

Failing to file your tax return accurately or on time can result in severe consequences:

1. Financial Penalties:
   • Late filing: A fixed £100 penalty for returns filed after 31 January.
   • Inaccuracies: Penalties of 30% to 200% of unpaid tax, depending on the severity of the error.
2. Backdated Tax Demands:
   • HMRC can recover unpaid taxes for up to 20 years in cases of deliberate evasion.
3. Criminal Prosecution:
   • Severe cases may lead to prosecution, fines, or imprisonment.
4. Increased Scrutiny:
   • Non-compliance can result in future audits and ongoing monitoring.
5. Reputational Damage:
   • Publicised cases of evasion can harm personal and professional reputations.

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Act Now to Avoid Trouble

With the 31 January deadline fast approaching, now is the time to act. Filing an accurate tax return and meeting your obligations is the best way to avoid penalties and HMRC scrutiny. Use these tips, double-check your figures, and seek advice if needed.

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For further assistance or queries, please contact us.

Leeds: 0113 320 9284                  Sheffield: 0114 272 4984

Email: info@shipleystax.com

Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.

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RECENT CHANGES TO UK tax legislation have transformed the rules surrounding charitable donations, particularly impacting those involving organisations outside the UK. Previously, individuals and companies making donations to certain non-UK charities could benefit from UK tax reliefs such as Gift Aid, capital gains tax relief, and inheritance tax exemptions. However, these changes now significantly restrict the scope of eligible organisations.

In today’s Shipleys Tax note, we look at the changes to UK tax relief rules for charitable donations and how they impact individuals and businesses. We’ll cover in general the updated rules, explore planning options, and provide practical strategies to ensure your charitable contributions remain impactful and compliant.

How UK Charity Tax Relief Used to Work for International Donations

Before the changes, charitable donations to organisations based in the European Union (EU) or European Economic Area (EEA) were treated similarly to those made to UK-based charities. This meant that:

1. Gift Aid: UK taxpayers could claim Gift Aid on donations to eligible EU/EEA charities, increasing the value of their contributions by 25%.
2. Capital Gains Tax Relief: Donations of assets, such as shares or property, to non-UK charities could qualify for relief under the “nil gain, nil loss” principle.
3. Inheritance Tax (IHT) Relief: Bequests to non-UK charities in wills were exempt from inheritance tax, ensuring that the full amount benefited the intended cause.

This favourable treatment recognised the interconnected nature of charitable work across borders, encouraging UK taxpayers to support causes globally while enjoying tax benefits.

Before the changes, charitable donations to organisations based in the EU/EEA were treated similarly to those made to UK-based charities..

New 2024 Rules: UK Charity Tax Relief Now Limited

From April 2024, tax reliefs are available only for donations to charities that meet the tightened definition of a “charity” under UK law. This includes:

1. Geographical Scope: The organisation must fall under the jurisdiction of the High Court in England and Wales, Northern Ireland, or the Court of Session in Scotland.
2. CASCs: Community Amateur Sports Clubs must operate within the UK and provide facilities for eligible sports exclusively in the UK.
3. EU/EEA Charities: While there was a transitional period for non-UK charities to adjust, this ended on 5 April 2024.

Donations to Non-EU/EEA Charities

Donations made by UK individuals or companies to charities outside the EU/EEA, such as those in Pakistan, Bangladesh, or the Middle East, generally do not qualify for UK tax reliefs. Under UK law:

1. No Gift Aid or Tax Relief: Direct donations to charities in these regions are not eligible for Gift Aid, capital gains tax relief, or inheritance tax exemptions.

2. The Alternative: To benefit from UK tax reliefs, donations must be channelled through a UK-registered charity or donor-advised fund (DAF). These entities can distribute funds to overseas causes while ensuring compliance with UK tax rules.

Case Study:
James, a UK taxpayer, wishes to donate £15,000 to a health initiative in Bangladesh. If he donates directly to the Bangladeshi charity, he receives no tax relief. However, by donating to a UK-registered DAF, which then supports the same initiative, James can claim Gift Aid, increasing his donation’s value to £18,750, and receive income tax relief on the amount contributed.

This approach ensures his support remains impactful while benefiting from UK tax efficiencies.

How Can Donors Plan for the New Rules?

1. Review Existing Donations:
   • Check whether the organisations you support still qualify for tax reliefs.
   • If not, explore UK-based alternatives or partner organisations that achieve similar objectives.

2. Utilise Donor-Advised Funds (DAFs):
   • A DAF is a flexible giving vehicle that allows donors to make a contribution, claim tax relief immediately, and distribute funds to eligible charities over time.
   • Example: Emma sets up a DAF with £50,000. She claims tax relief on the contribution and later supports approved UK charities in education and healthcare.

Donations made by UK individuals or companies to charities outside the EU/EEA, such as those in Pakistan, Bangladesh, or the Middle East, generally do not qualify for UK tax reliefs

3. Establish a UK-Based Charity or Trust:
   • For individuals supporting overseas causes, setting up a UK-based charity that funds projects abroad can ensure compliance with UK rules while retaining tax benefits.
   • Example: Sarah establishes a UK charitable trust to support educational initiatives in India, maintaining tax efficiency for her donations.

4. Diversify Donation Methods:
   • Beyond cash donations, consider giving assets like shares, property, or other valuable items. This may also help reduce other tax liabilities.
   • Example: Tom donates a portfolio of shares worth £30,000 to a UK charity, avoiding capital gains tax and receiving income tax relief.

The Bigger Picture

The changes reflect the UK government’s focus on aligning tax reliefs with domestic charitable activities. While they may limit support for international causes, proper planning ensures that donors can still achieve their philanthropic goals.

With the new restrictions on which charities qualify for tax relief, including limitations on donations to EU/EEA and global organisations, it’s more important than ever to understand how to maximise your charity giving while staying tax-efficient. So if you regularly donate to non-UK organisations, it is essential to reassess your contributions, understand the impact of the new rules, and seek professional advice to optimise your giving strategy. This will help ensure your donations remain impactful and tax-efficient under the updated rules.

For further assistance or queries, please contact us.

Leeds: 0113 320 9284                  Sheffield: 0114 272 4984

Email: info@shipleystax.com

Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.

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