With the new tax year looming, it is important to re-examine how the latest Budget – the first Conservative Budget for 19 years – will affect the dental profession. Having had time to evaluate the pending changes, it seems that dividend taxation could have the largest impact, especially those drawing dividends from their own limited company.
As dividends from UK shares are currently paid for with a 10% tax credit, previous years have presented incorporations with opportunities for reducing tax. From 2016, however, all dividend income will be treated as untaxed income and the current system will be replaced with a tax-free dividend allowance of £5,000 with higher taxes on income above that. What this ultimately means, is that practices will see a 7.5% increase in tax on any dividend income above the £5,000 tax-free allowance.
Although this is an aspect that will undeniably affect incorporated practices and their overall income, for those considering the decision to incorporate in the future, it could be pertinent to seek out professional financial advice to determine if it is the right decision to make.
In regards to dividend income received on Stocks and Shares ISAs and private pensions, however, thanks to the 1997 Budget, there will be no tax consequences introduced. This is good news for private pension protection, especially as tax relief claims will shortly be changing from £40,000 to £10,000 for dentists with incomes over £150,000 per annum.
The changes to employment allowance, income tax and inheritance tax are much more promising. Indeed, as from April, the employment allowance will be increased from £2,000 to £3,000 for all private practices. With the additional increase of the income tax higher rate threshold from £42,385 to £43,000, the Budget does present potential benefits to practices and dentists alike.
This is especially true where inheritance tax (IHT) applies. With the transferable main residence allowance set to gradually increase from £100,000 in April 2017 to £175,000 per person by 2020/21, this may prove to be a comforting thought for dentists and their families who have concerns about the effects of the Budget.
All in all, the Budget has revealed some interesting changes. While George Osborne and his fellow Conservatives expect to see public finances run at a surplus from as early as 2019, it would be prudent for all practices and dentists to stay cautious of what the future holds. Ultimately, until the changes take full effect it is uncertain what financial downfalls and benefits may occur, which means for now, preparation and calculation are very much advised. If you are unsure of how the Budget affects you, contact money4dentists today.
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