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Are you liable for a ‘hidden retirement tax’?

If you’re a partner in a GP practice that owns its own premises, you may not be aware of the tax liability that could arise if you retain your share in the surgery when you retire.

Stamp Duty Land Tax (SDLT) was introduced in 2003 and is payable on the transfer of an interest in a property. Chargeable transfers include introducing and removing the surgery from a partnership. This is regardless of whether any changes in ownership need to be notified to the Land Registry or whether any of the other partners buy in or out.

The tax itself will form part of your self assessment meaning it is your responsibility to declare it, and can amount to almost 5% of the surgery market value.

Since it is increasingly common for GPs to retire from partnerships whilst retaining a share of the surgery, we estimate that many hundreds of GPs will, over time, have become liable to pay SDLT. Many may be unaware of this liability, but the consequences of non payment can be severe. In addition to any overdue tax HMRC will levy fines and interest, and if they consider that you have deliberately not paid will look back up to 20 years.

What is SDLT?

SDLT is a tax you need to pay if you buy an interest in property or land over a certain price in England, Wales or Northern Ireland. The current SDLT threshold is £150,000 for non-residential land and properties.

When do you need to pay SDLT?

You become liable for the tax when you:

  • buy a freehold property
  • buy a new or existing leasehold
  • transfer an interest in land or property, including transfers into and out of partnerships

Is there not a Partnership Exemption?

You may well have heard that there is an SDLT exemption for partnerships. Whilst it is true that most intra-partnership transfers are exempt, you need to be certain that every transaction qualifies. Introducing and removing a building to/from the partnership are certainly not exempt, and even transferring shares between partners can be chargeable if, for example, the surgery was recently introduced as a Partnership Asset.The key point to understand in order to determine any liability is whether or not the surgery is held as a Partnership Asset. If you retire with some or all of the Partnership Asset you will be treated as a purchaser for the purposes of SDLT.

How do you calculate the tax?

Unfortunately this is not simple. SDLT for partnerships is calculated very differently from ‘normal’ property transactions, and is not a straightforward percentage of the market value. The calculation can involve changes in income profit shares going back 13 years and requires specialist knowledge.

Think you may be liable?

If you are planning to retire soon and are considering holding onto your share of the surgery, SDLT is something that you should take into account in your financial planning. Given enough time, you can make plans which manage your liability.

If you are a retired Partner and think you may have a historic liability, please get in touch. The partnership SDLT team at DR Solicitors is one of the most experienced in the country, and can help you understand where you might stand in relation to this issue.

For more information, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com