How has the 2024 October Budget impacted practice ownership and sales?

Dental Regional Manager, Simon Cosgrove, discusses how the October 2024 budget has impacted practice ownership and sales.

Labour's first budget was delivered by Chancellor of the Exchequer Rachel Reeves on Wednesday 30th of October 2024. Charting a very different course from the previous Government, a number of significant changes were announced, some of which will inevitably impact dentists and dental practice owners.

How will the changes announced in the October budget impact practice owners on a day-to-day basis?

The first and most obvious change is probably the increase in Employer National Insurance Contributions (NIC); the threshold at which employers pay National Insurance has been reduced and the rate at which they pay contributions has been increased. Therefore, wage bills for practices will be significantly higher – this is likely to put pressure on margins and could ultimately affect the take-home pay of practice owners as well as further knock-on effects. Less capital, for example, could also potentially reduce the practice's ability to invest in their facilities and their team, possibly leading to fewer opportunities to increase their capacity or to offer more services.

The Personal Allowance and basic rate band for Income Tax will remain frozen until 2027/28 but will then be uprated in line with inflation. This is likely to see more dentists become additional rate taxpayers or even higher rate taxpayers, as an increase in income could potentially mean moving into a higher tax band. This could impact a dentist’s decisions on when they retire perhaps, or how many days a week that they work. There is also the possibility that some dentists may even start scaling back their working hours in order to keep within a particular tax band.

Another significant announcement for practice owners is around the alterations to Business Asset Disposal Relief (BADR) – this is where practice owners may be able to get relief from Capital Gains Tax on the sale of a practice. Under the current rules the first £1million is taxed at a reduced rate of 10%. However, from April 2025, that's going to increase to 14%, and then the following tax year – from April 2026 to 2027, it's going to rise to 18%. This will impact any practice owners planning to use the proceeds of the sale of their practice to fund their retirement. These dentists may have to revisit their plans and calculate whether they will now have sufficient income for their retirement.

Will the upcoming changes to inheritance tax (IHT) impact practice owners?

Under the current rules, the main IHT nil-rate band is £325,000 per person. Provided your estate is below £2m when passed on to your beneficiaries, an additional £175,000 nil rate band allowance can be applied to your main residence. Currently pensions do not count towards IHT when you die. From April 2027 however, this will change, and any unspent pensions will be included in the IHT net and potentially charged at 40%, depending on the size of the estate.

A pension can be a substantial asset – for many practice owners, their top three assets include their main residence, their dental practice and their pensions – so this could potentially have a significant impact depending on the circumstances and plans.

It is important to remember, however, that this change in rules is not planned to be implemented until April 2027, so it is very important that people don’t make any knee jerk reactions and crystallise any pensions as a direct response to the Budget, as there is plenty of time to revise any plans (if necessary) before the changes take place. The pension changes aren’t included in the 2024/25 Finance Bill and are subject to further consultation (with responses due by 22nd January 2025) and a future Finance Bill.

From a financial planning perspective, what do you think practice owners should be thinking about?

One of the first things to think about is the level of taxable income and to ensure that the most tax efficient business structure is in place. A dental specialist tax accountant can offer specific guidance. Pension contributions can also help to reduce taxable income due to the tax relief they can offer – this can help to reduce the amount of income tax that's payable and, in some cases, regain some lost Personal Allowance.

The alteration to BADR could mean that there will be less funds available for retirement for practice owners, making it important to revisit any retirement objectives they may have and to recalculate whether a sale is now going to achieve the outcome they require and maintain their desired standard of living in retirement.

The other thing which will need consideration moving forwards are the changes around IHT. It is important to note, however, that this doesn't mean that pensions are no longer tax-efficient investments. The main objective of a pension has always been to save for your retirement and to allow you to have the capital and income that you need in retirement. The fact that pensions were held outside of the estate up until this point has been a very attractive added extra, allowing pension funds to pass down the generations free of income tax charges.

There may be several potential options to try to mitigate these changes, however this is a complex area that will vary from person to person, making it important to seek support based on your individual circumstances from a dental specialist financial adviser.

In summary, it's important that practice owners and associates talk to advisers to understand how the changes announced in the budget may have impacted them, how they can mitigate any risks and how they can re-adjust their finances for the future, to make sure that any changes are appropriate to them and for their individual circumstances.

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 would like support or guidance on understanding your financial position, speak to a dental Specialist Financial Adviser or Planner at Wesleyan Financial Services for a financial review by visiting wesleyan.co.uk/financial-advice/dentists or by calling 0808 149 9416. Charges may apply. Learn more about our charges here.

About: Simon Cosgrove is a dental Regional Manager, at Wesleyan Financial Services, supporting dentists, their families and their practices with financial planning to secure their financial future.

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