Stuart Garlick explains the tax benefits of operating as a limited company director in dentistry and how to get the most out of your pension.
When you move from NHS dentistry to private practice, your financial landscape changes significantly. You may gain more freedom and earning potential, but you’ll also take on greater responsibility for managing your income, tax and long-term financial security.
One of the most effective ways to make your earnings work harder is through pension planning – particularly if you operate your practice as a limited company.
Contributing to a pension through your business isn’t just about preparing for retirement. It can also be a highly tax-efficient strategy, helping to reduce corporation and capital gains tax liabilities while building a robust fund to complement (or replace) your NHS pension.
Tax treatment depends on your individual circumstances and may be subject to change in the future.
How does it work?
As a limited company director, you can choose to pay into your pension either personally or through your business. Both routes offer tax relief, but in most cases, contributing via your company tends to be the more tax-efficient option.
For non-limited company directors, pension contributions are usually tax-free up to either £60,000 or their annual income – whichever is lower. But as a limited company director, your company can make pension payments that aren’t restricted by your salary.
In line with the current annual allowance, your business can contribute up to £60,000 a year without triggering additional tax charges, even if your company’s profits are below that figure. Remember though, any contributions you make elsewhere (for example, the NHS pension scheme) will also count towards your annual allowance.
Tax advantages for limited company directors
Running your practice as a limited company director can offer a range of potential tax benefits, including:
Corporation tax relief
When your company contributes to your pension, the amount counts as an allowable business expense. This means it can be deducted from your taxable profits, effectively reducing your corporation tax bill.
Income tax and national insurance savings
Employer contributions aren’t treated as personal income. This means you avoid paying income tax and national insurance on the amount you invest.
Instead of drawing money as salary, paying it into your pension allows more of it to stay in your name for the future – rather than it being lost to tax today.
Capital gains tax considerations
If your company holds too much unused cash when you come to sell, HM Revenue & Customs (HMRC) could decide it’s no longer a ‘trading’ business. If this happens, you may no longer qualify for Business Asset Disposal Relief (BADR).
Making regular pension contributions can help reduce surplus funds, keeping your company’s trading status intact and preserving your eligibility for reduced capital gains tax when you close or sell your practice.
Employing family members
If your spouse or other family members genuinely help with the administration or management of your practice, paying them a fair salary can be another tax-efficient step.
This is because their wages are classed as a deductible expense, lowering your corporation tax bill. What’s more, if their personal allowance isn’t exceeded, they won’t owe income tax. However, HMRC does require that the employment is genuine and properly documented.
Choosing the right pension for your private dental career
As a private dentist, you won’t be automatically enrolled into a workplace pension scheme like you were with the NHS. This gives you the freedom to choose your own pension plan – one that reflects your income pattern, investment preferences and long-term goals.
Ultimately, the best pension is the one tailored to both your personal and professional circumstances. A specialist financial adviser, particularly one experienced in supporting dental professionals, can help you integrate your pension into your wider financial strategy, including your savings, investments and exit strategy planning.
To book a conversation with a dental specialist financial adviser from Wesleyan Financial Services, visit wesleyan.co.uk/dental or call 0808 149 9416.
Please note: charges may apply. You will not be charged until you have agreed to the services you require and the associated costs.
Learn more at www.wesleyan.co.uk/charges.
This article is sponsored by Wesleyan Financial Services.
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