Dental regional manager Neil Richardson from Wesleyan Financial Services discusses what dentists should be aware of in the upcoming budget.
What can we expect from the budget?
Perhaps one thing we can expect from the budget is that it is likely to be full of a number of surprises. During an audit published by the Treasury at the end of July, the Labour government revealed a ‘£22bn black hole’ in the public finances. In order to plug that deficit, Labour will have to raise revenue. Exactly how they will achieve this has become a topic of much speculation across the national headlines.
One such topic is around potential changes to National Insurance (NI). Labour’s 2024 manifesto stated a clear commitment not to raise NI: ‘Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.’
However there is now talk of a potential increase to employer National Insurance Contributions (NICs). The rumours suggest that Chancellor of the Exchequer, Rachel Reeves, is considering changing the rules so that employers have to pay NICs on the money they put into their workers’ pension schemes. This has led some to question whether Labour is in fact breaking its manifesto pledge.
If changes were made to NICs, this would impact the overheads of most dental practices, creating a fall in profits. It would create an additional cost across every single employee of the business, from dental therapists, hygienists, nurses, reception and cleaning staff, and so forth. Basically, everybody that’s employed by the business would suddenly get an extra percentage line in terms of costs. Ultimately this would impact on the profitability of the business and the take-home pay for the practice owner(s).
There are rumours of tax increases – what could these look like?
It is probably safe to say that we can expect a budget with a focus on wealth-based taxation. There has been much speculation surrounding Capital Gains Tax (CGT). This is an area where potential changes would likely impact any dentists looking to sell, acquire or pass on a dental practice.
Currently, practice owners benefit from Business Asset Disposal Relief (BADR). This allows gains of up to £1 million, to be taxed at a reduced rate of 10%. If this relief is reduced or removed entirely, it could have a significant impact on anyone currently in the process of selling their practice.
Significant reform around pensions is also on the cards, with talk of a £100,000 cap to the pension tax free lump sum.
Another area for potential change is to the rules surrounding inheritance tax (IHT) – here, the chancellor has a number of options to raise revenue. This could include raising the 40% rate at which IHT is charged if your estate exceeds the set threshold. This is referred to as the nil-rate band, which is currently set at £325,000; 40% tax is charged on the excess above this threshold.
There is also the potential for Reeves to change or even abolish the residence nil-rate band set at £175,000. Other possible changes could be around the rules surrounding gifts and exemptions.
Is there anything dentists can do in the run up to the budget?
Many dentists may be feeling understandably apprehensive about the upcoming budget as Labour has been clear that things are set to change. However, until the budget is announced, we can’t know what exactly these will be. We should not make changes based on speculation.
I would say the most important thing that dentists and practice owners can do in the run up to the budget is to ensure that they fully understand both their personal financial situation and that of the practice.
To achieve this, I would recommend having a detailed review with both a specialist tax accountant and a specialist financial adviser. This will help to put you in an informed position whereby when the budget is announced, you will understand what it means to your individual circumstances and what your options may be.
It’s also worth bearing in mind that generally speaking, policy changes don’t tend to start until the following tax year, and any immediate changes typically don’t come into effect for two to three months. My advice to dentists and practice owners would be to start addressing the ‘what ifs’ by taking the time out now to fully understand your financial position, as this will help to remove the stress from the situation.
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 0800 149 9416.
