Dental update: A spring clean for your tax planning - our top ten tips

Published: Tuesday 21 March 2023

As we officially enter a new season and bid farewell to the end of another tax year, now is a good time to take stock and approach your 2023/24 tax planning with a fresh perspective.

By taking the time to review tax-saving opportunities well in advance, you can be confident that you have maximised various allowances and reliefs available, whilst keeping your tax liabilities as low as possible.

We have set out below our top ten tips to consider:

1. Incorporated, owner-managed dental practices should review their remuneration package ready for the new tax year and look to utilise their tax bands as far as possible. A combination of low salary, high interest and dividends could result in tax free income of up to £19,570 (double that for couples) in 2023/24, if structured appropriately and depending on the individual’s circumstances.

2. With the dividend allowance expected to reduce from £1,000 in 2023/24 to £500 from 6 April 2024, it should be ensured, where possible, that dividend allowances are fully utilised. It is important to consider spouse planning opportunities to double tax-free allowances where possible.

3. As the personal allowance is reduced by £1 for every £2 of net income over £100,000, those with income of between £100,000 and £125,140 could end up paying tax at an effective rate of 60%. If you think your income will reach this threshold it may be worth considering ways to reduce your taxable income. This could be achieved by making pension contributions, charitable donations or transferring income producing assets to your spouse.

4. It is worth reviewing the structure of your business to ensure it is operating in the most tax efficient way. Incorporation may be an option to consider; each dentist’s circumstances are different, and it is worth reviewing to see if tax savings can be achieved.

5. The personal savings allowance allows the first £1,000 of savings income to be paid tax free to basic rate taxpayers and the first £500 for higher rate taxpayers (nil for additional rate taxpayers with income over £125,140 from April 2023). Directors who have loaned money to their company could consider paying a commercial rate of interest on the loan to utilise this allowance. Note that the company would have some compliance obligations to meet making the interest payments.

6. Taxable income exceeding £50,000 for the year could lead to a claw back of child benefit under the high-income child benefit charge. Once taxable income reaches £60,000 the benefit will be lost in full. Reducing, deferring or transferring taxable income as described above could help to preserve this benefit.

7. With 100% of mortgage interest relief for landlords restricted to the basic rate of tax, you may not receive full relief for your finance costs. There are several ways to minimise the impact of the rules including incorporation, spousal transfers, use of partnerships etc.

8. If you have any surplus cash, you could look to make a tax efficient investment. There are various options which typically offer income tax relief at 30% (but can be as high as 50%) and with tax free capital gains on disposal. It may also be possible to carry back an investment made in 2023/24 to 2022/23 to accelerate tax relief. 

9. The capital gains tax annual exemption for all individuals is £6,000 for 2023/24, reducing to £3,000 from 2024/25.  Consideration should be given to the transfer of assets between spouses such that both utilise their annual exemptions on a subsequent disposal. Claiming/crystalising capital losses could also help to offset future gains with the reducing allowances.

10. Consider utilising your pensions allowance, which enables you to contribute up to £60,000 for 2023/24, plus any unused allowance for the previous three tax years (bear in mind that the annual allowance for earlier years is still £40,000). If your adjusted income is more than £260,000, the allowance reduces by £1 for every £2 above this threshold down to a limit of £10,000. This reduction only applies where your ‘threshold income’ (broadly taxable income) is also over £200,000. As the NHS pension is a defined benefit scheme it is the growth in value of the fund, rather than the superannuation contributions made, which counts towards the annual allowance. Careful consideration and advice from an independent financial adviser who specialises in the NHS pension scheme is required.

Please contact a member of the Dental team if you would like further tailored advice.

Content image: /uploads/team/unknown.jpg Nigel Utting
Nigel Utting
Partner, Dental
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