How will frozen indexation affect your assets?

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Michael Lansdell asks: “Indexation has been frozen – so, what’s your plan?”

Indexation provides relief against inflation – it’s the adjustment of things like wages and taxes according to changes in the cost of living or other indicators to compensate for the fact that goods and services are going up in price. It increases allowable expenditure in line with the Retail Price Index (RPI).

When indexation was frozen for limited companies last December, inflation was rising – the RPI at the time of the freeze was a 4.1% increase for 2017. Indexation was withdrawn for individuals decades ago, but has continued to be available to companies – until now.

Indexation will still apply on all assets your company acquired before December 2017. So, if you acquired your asset before then, giving it a disposal date of January 2018 onwards, you can calculate the indexation relief by deducting the RPI index figure on the date you acquired it from the indexation figure last December.

Because of the freeze, property sales are likely to be the hardest hit and companies could face a significant hike to their future tax liabilities.

With good, practical advice – such as from the specialists at Lansdell & Rose –you will be able to see if any mitigating factors apply in your case and uncover possible planning strategies. For example, indexation might end up becoming abolished altogether (in the way it has been for individuals and trusts).

If the business owns a few properties, this could mean that you dispose of long-held properties first because they will have a more substantial amount of indexation.

Of course, the rate of corporation tax will be reduced in 2020, from 19% to 17%. Dental practice owners will already be aware of the future changes and should be planning accordingly. However, tax planning is rarely enjoyable, and it really should not be something that you structure your business plan around.

If you want help with understanding the changes to indexation and what it could mean for you, you must seek expert help from an accountant who knows the dental industry and the pitfalls with trying to grow a practice in this competitive market – particularly as so many economic factors could change.

It’s common for a business to own a property, such as one that it rents out. Under the new rules, the increase to future tax liabilities could be significant. Is it time to move quickly and decisively to maximise your return from disposing of any assets?

For more information, visit www.lansdellrose.co.uk or call Lansdell & Rose on 020 7376 9333.