Neil Richardson is a Dental Regional Manager, at Wesleyan Financial Services, guiding a team of dental Specialist Financial Advisers at Wesleyan Financial Services to support dentists, their families, and their practices with financial planning to secure their financial future.
He answers some questions arising from the October 2024 Budget.
Q. The Chancellor announced increases to employers’ National Insurance contributions and the Minimum Wage. How will this affect my practice?
A. Employers’ National Insurance will now rise from 13.8% to 15% on earnings over £5,000, down from £9,100.
On the Minimum Wage, employees over 21s will get a 6.7% pay boost, while 18 to 20-year-olds will get more than 16% and apprentices will enjoy an 18% uplift.
It will mean higher wage bills for practices, putting pressure on margins and, ultimately, take-home pay for practice owners.
Not only that, it will reduce practices’ ability to invest in their facilities and teams, which means fewer opportunities to grow, increase capacity and offer more services.
At a time when many people, including children, are already struggling to access dentistry, this policy may force more patients to attend busy hospital A&E departments and has the potential to store up long-term problems for the future.
It’s also worth considering the implications for private dentistry, which could become more expensive, potentially driving private patients back to the NHS.
So, dentists will be anxious to learn if the revenue raising policies announced today will be balanced by extra funding for dentistry.
Q. What does the decision to maintain the freeze on Income Tax bands - for now – mean for me?
A. Inevitably, the decision to maintain the freeze on Income Tax bands means that more dentists will become higher rate and additional rate taxpayers.
This could act as a disincentive for dentists to keep working and many may be considering scaling back their working hours or even retiring altogether.
Against this backdrop, dentists could consider strategies for reducing their taxable income, including ensuring they have the most tax-efficient business structure in place, and maximising their ISA and pension contributions.
The good news is that the Chancellor did promise that thresholds will begin to increase in line with inflation from April 2028.
Q. How will today’s Budget affect my retirement plans?
A. Members of the NHS Pension Scheme will be relieved that the ability to take 25% of their pension pot as a tax-free lump sum, up to a maximum of £268,275, was left untouched.
This is a significant benefit that forms a central part of many dentists’ retirement plans.
More tinkering, coming after public pension schemes have seen significant reform, including the McCloud judgement, could have discouraged dentists from saving into the scheme.
Q. How could the changes to Business Asset Disposal Relief, Capital Gains Tax and Inheritance Tax affect my plans for my practice?
A. The Chancellor increased Capital Gains Tax, paid on profits on the sale of business assets, from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers.
At the same time, Business Asset Disposal Relief, which allows gains of up to £1 million to be taxed at a reduced rate of 10%, will rise to 14% in April 2025 and 18% from 2026-27.
That could be a serious blow to any practice owner who had planned to sell up to fund their retirement and who will have to revisit their plans and recalculate whether a sale will now achieve the outcome they had anticipated.
The decision could also weaken the incentive for dentists to take the risk of starting and growing their business, which could lead to even more problems accessing dental care.
And while Inheritance Tax is currently only paid by 6% of families, the decision to freeze the threshold at £325,000 for a further two years is welcome given recent speculation.
However, the sting in the tail is that, while previously pensions did not count towards this total, from April 2027 inherited pensions will now be included.
The government wants a fairer tax system and for inheritance to be applied consistently across similar products such as pensions and savings.
They also want to encourage people to use their pension tax relief for retirement as it was initially intended for and not as capital to be passed on.
This doesn’t mean pensions are no longer tax efficient investments, but clients may look differently at how they take them at retirement.
Rather than moving funds into income drawdown so they can be inherited by their dependants for example, they now may choose to take them and place the money in a more IHT friendly investment such as an investment held in trust.
It has made IHT and retirement planning more complicated as there will need to be a comparison between the IHT liability of leaving the funds in a pension compared to the tax incurred for withdrawing the funds.
So, this remains a complex area of tax law with numerous allowances and exemptions, so professional advice will be important to ensure your succession plan is as tax efficient as possible.
Please bear in mind that advice in relation to inheritance tax planning is not regulated by the Financial Conduct Authority. Tax treatment depends on individual circumstances and may be subject to change in future.If you need support or guidance on understanding your financial position, speak to a Specialist Financial Adviser at Wesleyan Financial Services for a financial review by visiting wesleyan.co.uk/financial-advice/dentists or call 0808 149 9416.
Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is authorised and regulated by the Financial Conduct Authority. Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone: 0345 351 2352. Calls may be recorded to help us provide, monitor and improve our services to you.