Neil Richardson gives an update on what the new Labour government might mean for dentists in terms of financial planning, including taxation and legislation.
Speculation and rumours as to what could change under a new government with regards to taxation and policy have been rife, both in the run up to the election and following the announcement. Labour have however, been very clear about what is not going to change, such as taxation for working people. Tax rates such as income tax, national insurance, VAT and corporation tax will remain the same.
Although income tax will not change, Labour has previously said that it will go ahead with the former government’s proposal to freeze income tax thresholds until 2028. This will inevitably push more people into higher tax bands.
Private education
We also know that Labour intends to proceed with its plans to end the VAT exemption on private schools to generate additional revenue, which would be used to recruit more teachers in state schools and funding childcare. However, while fees may not necessarily increase by the full 20% VAT rate (private schools would be able to deduct the VAT they pay when purchasing goods and services, resulting in an effective VAT rate closer to 15%) private school attendance may very well decline due to the change.
This is something which will have a significant impact on many of our dental clients whose children attend fee paying schools and cause some potentially difficult decisions to make. We have heard from our team of dental specialist financial advisers that some dental clients are investigating ways to economise to counteract the upcoming fee increase, by extending their mortgage term, or reducing their pension savings for example.
I would stress the importance of seeking specialist guidance to any dentist when looking to make any type of change that could potentially impact your own financial future and security.
We have also heard from other clients that grandparents have stepped in to offer support. However, it is important to understand how any support offered fits with the rules around gifting and inheritance tax. Discuss any changes with an adviser to fully understand the impacts of making any changes.
Wealth-based taxes
Whilst we know what Labour have promised not to change, there were several notable omissions in their manifesto on a number of wealth-based taxes. This is an area with the potential for reform, which could have a significant impact on dentists in a number of ways.
Labour’s lack of confirmation that it will not raise capital gains tax has led many to speculate that this might be on the agenda. Changes to rates, exemptions, and investment incentives have been raised. This could make a sizeable dent in the net returns received from the sale of a practice. If we do see any changes to capital gains tax, it is important that any investment portfolios are thoroughly reviewed to understand any tax implications for the following tax year.
There is also the potential for changes around inheritance tax rules as Labour have not specifically stated that they will not make changes to this area. We know this is unpopular among the general public and a massive income generator for the revenue. If this is an area of concern, I would encourage dentists not to sit and wait to see if anything does change, but to get some specialist advice on it now.
Changes to corporation tax could also see many dental businesses reconsider the viability of their business structure in day-to-day tax efficiency terms. We then have to consider the potential impact of a limitation on tax relief on pension contributions, which will be a huge loss for many dentists.
Seeking advice
These potential changes would not just impact the wealth that you can pass onto your loved ones, they could also impact the quality of your retirement. Therefore, I would urge dentists not to wait for something to happen, but to be proactive and get in touch with their adviser now to start to think about the consequences of any potential changes.
Bear in mind that the value of investments can go down as well as up and you may get back less than you invest. 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.
For further support and guidance to plan for the financial year ahead, speak to a dental specialist financial adviser at Wesleyan Financial Services by booking a no-obligation financial review or calling 0800 316 3784.
This article is sponsored by Wesleyan Financial Services.
