What has the new Labour government announced so far that could potentially impact financial planning for dentists?
If we consider what has been announced so far, Labour has said it is not planning to raise income tax, National Insurance, VAT and corporation tax. On the face of it, this is a good thing, although, on the other hand, this needs to be balanced against the fact that income tax thresholds are being held and will remain frozen until 2028. This means that more people will start paying tax in the first place and others will be dragged into higher tax bands. Labour has also stated that their plans to end the VAT exemption on private school fees will go ahead – this change may have a significant impact on many of our dental clients whose children attend fee paying schools.
What might change in the future?
At present there is a degree of speculation regarding what was notably absent from Labour’s manifesto and what could therefore potentially change in the future. For example, there has been no specific mention of capital gains tax – this could possibly be an area for reform in the future. Capital gains tax, as we know, is not a tax on income, it's a tax on assets and the sale of assets – something which could perhaps impact the net returns received from the sale of a practice.
Then there is the age-old challenge around pensions – for the 35 years that I have been in this business, pensions have always been a potential target for change and for governments to try and do something in a different way. We know that the lifetime allowance - the maximum amount you're allowed to have in a pension pot or an accumulation of pension pots at retirement - was withdrawn last year, a welcome change that helped to encourage people to continue to save and look after themselves in the long term. Labour has confirmed that it will not reinstate the lifetime allowance, which is good news for dentists; however, another notable omission from the manifesto was around the annual allowance - the amount that you are allowed to contribute to a pension each year. If we look at pensions overall, they're extremely tax efficient and offer a good method of saving – this also means though, that some of the tax allowances may potentially be a target for change, such as pension tax relief to give an example.
The tax-free pension commencement lump sum - this allows you to take a certain percentage (currently 25%) out of your pension as a tax-free lump sum – is another area that has been discussed as a potential for change in recent years. Nothing has been announced however, and this is only speculation. I am hopeful that this government encourages people to save and look to maintain the tax advantages of pension planning and of retirement planning.
What sort of changes would you welcome from the new government?
I would be delighted to see changes made to ISAs to encourage people to invest more, especially so for younger people. If we think of young dentists who are just coming into the profession and how hard they have studied to get started – it would be wonderful to see some sort of scheme specifically for these dentists, to help them save and to encourage them to build solid foundations for their future as well.
What would you encourage dentists to think about now?
I would encourage dentists to look after themselves in the short, medium, and long-term and to not delay making decisions, with regard to their financial planning, in the event that things may change in the future.
My fear is that while there's uncertainty at the moment around what the new government might do, some people may choose to do nothing and that in itself, in the long run, could be even more damaging. By choosing to wait until inflation comes down, until interest rates come down or until the next budget for example, we miss opportunities; and when the autumn statement does come around, it’s likely that other unanswered questions will transpire. There will always be something else, a war that we cannot control or an economic challenge that we weren't expecting, or another reason to delay and before we realise, six months becomes one year, one year becomes five years and so forth, and then the opportunity has gone.
I would encourage dentists to take a step back and use this as a time to reflect and consider the following: What am I trying to do? Am I doing the best I can over the short, medium, and long term?
Speculating over what could happen is an interesting discussion, but it can also create fear. Therefore, we need to be careful that we don't over speculate and just assume that certain things are going to happen. We need to be careful that we don't just keep putting things off and ensure that we continue to make good financial, well-informed decisions.
Bear in mind that the value of investments can go down as well as up and you may get back less than you invest.
Tax treatment depends on individual circumstances and may be subject to change in future.
For further support and guidance to plan on financial planning, speak to a dental Specialist Financial Adviser at Wesleyan Financial Services by booking a no-obligation financial review or calling 0800 316 3784.
About: Iain Stevenson is Head of Dental at Wesleyan Financial Services and has over 28 years of experience working in financial services. Under Iain’s guidance, Wesleyan Financial Service’s Dental segment helps to support dentists, their families, and their practices with financial planning to secure their financial future.
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