The National Association of Specialist Dental Accountants and Lawyers (NASDAL) have released their analysis of George Osborne’s first Tory-only budget and have looked at the package of changes to taxation and pensions that are most likely to impact owners of incorporated dental practices as well as top-earning dentists.
One key change that will benefit all practice-owners is the increase in the employers’ National Insurance Contributions Allowance of £1k, from £2,000 to £3,000, which will come into effect from next April. NASDAL member, Simon Richards, is of the belief that this relief is designed to offset the increased in minimum wage, which will rise to £9 an hour by 2020.
Richards, a tax partner with UNW LLP, highlighted 9 key areas from the Budget that will affect dentists and practice owners:
- Dividend tax credit is to be abolished. Simon said: “This is the change which has surprised us most. Tax free dividends are being significantly curtailed.” Instead of being able to draw annual dividends tax free up to the value of £32,000, there will be a dividend tax allowance of £5k per year, from next April. The new rate of tax on dividend income will be 7.5% for basic rate tax payers, 32.5% for higher rate tax payers and 38.1% for additional rate tax payers.
- With immediate effect, the Chancellor has restricted the corporation tax relief that can be obtained against the purchase of goodwill. Alan Suggett, another NASDAL member, commented: “This will have a significant impact on the tax payment position of newly bought private practices. This is bad news for the dental market place but doesn’t close the door on dental incorporations.”
- Good news comes in the form of lower corporation tax from 20% today, to 19% in 2017 and 18% in 2020. Simon said: “In the space of four years, dentists will see an overall reduction of 10% in their tax bill.”
- The permanent increase in the Annual Investment Allowance on all qualifying equipment acquired on or after January 1st 2016 to £200,000 was also welcomed.
- Buy-to-let landlords will also experience a restriction on the relief that they can claim on their mortgages
- Dentists who have a non-domiciliary status will be taxed like all other UK dentists from April of 2017. “If a dentist has been here for 15 of the last 20 years, they will be taxed on any overseas income, even if they don’t bring it into the UK.”
- A new inheritance tax allowance has been added to the existing entitlement of £325,000 – beneficiaries currently pay inheritance tax at 40% on any sum above this figure.
- The lifetime allowance for an individual’s pensions pot is being reduced from £1.25 million to £1m from April of next year
- The government will also restrict the benefits of pension tax relief from April next year for those with incomes above £150,000 by tapering their annual allowance but subject to a minimum allowance of £10k