Budget Briefing: What does it mean for Dentists?

This was the most highly anticipated Budget in years, with talk of black holes and difficult decisions dominating the run up to Rachel Reeves’ big day.

The first Labour budget for 14 years was said to include tax rises and spending cuts to the value of ￡40 billion, alongside tweaks to the fiscal rules that would allow the government to borrow more.

So, what do the policies announced today mean for doctors, dentist and teachers?

TAXES

The Labour manifesto promised no tax increases for working people, but leaving the previous Government’s freeze on Income Tax thresholds in place until April 2028 means fiscal drag will inevitably pull more professionals into higher and additional rate tax bands over time.

It is those more experienced doctors, dentists and teachers who will face the biggest hit, potentially acting as a disincentive to continue working and prompting them to cut their careers short at a time when they are so badly needed.

At least the Chancellor did promise that thresholds will begin to increase in line with inflation from 2028/29.

Inheritance Tax is currently only paid by 6% of families.

The decision to freeze the threshold at ￡325,000 for a further two years is welcome. However, the sting in the tail is that, while previously pensions did not count towards this total, from April 2027 inherited pensions will now be included.

This remains a complex area of tax law with numerous allowances and exemptions, so professional advice will be important to ensure your succession plan is as tax efficient as possible.

John Cunliffe, specialist financial adviser at Wesleyan Financial Services, said: “Some people who had been planning on being able to pass on retirement savings will need to urgently reconsider their next steps.

“Today’s decision could encourage more tax-efficient strategies, including lifetime gifting, and see more people try to develop their own plans to transfer their money and assets in a tax-efficient way.”

PENSIONS, SAVINGS & INVESTMENTS

Members of the NHS and Teachers’ Pension Schemes will be relieved that the ability to take 25% of their pension pot as a tax-free lump sum, up to a maximum of ￡268,275, was left untouched.

This is a significant benefit that forms a central part of many people’s retirement plan.

More tinkering, coming after public pension schemes have seen significant reform, including the McCloud judgement, could have discouraged people from saving into their scheme.

And the Chancellor maintained the triple lock on the State Pension, which she said would mean an extra ￡470 during 2025-26.

It was also welcome that the Chancellor chose to leave Individual Savings Accounts alone, which remain a useful tool for saving and investing without paying any tax on the income.

Iain Stevenson, head of dental at Wesleyan Financial Services, said: “It was good to see the tax-free lump sum left untouched today. In our view, reducing or removing it would have had serious knock-on effects for dentists’ financial plans, causing some to re-think their retirement strategies and undermining confidence in pension saving overall.

“We hope that this isn’t brought up again as a potential source of tax-revenue and would welcome any commitment from the government around its future. After all, good planning is underpinned by certainty.”

BUSINESS

There’s no denying that businesses will bear the brunt of the revenue raising measures announced today.

The most widely trailed of today’s announcements was a 1.2% increase to employers’ National Insurance, which went up from 13.8% to 15% on earnings over ￡5,000, down from ￡9,100.

For GP and Dental practices, and independent schools, staff costs are among their biggest outgoings, and this hike comes after a period of significant wage inflation.

Alec Collie, head of medical at Wesleyan Financial Services, said: “Staff costs are already one of GP practices’ biggest outgoings and they have increased substantially in recent years, so today’s announcement on employer National Insurance contributions will only pile more pressure on practices.

“It means they will have less capital to invest in frontline services at a time when so many practices are already overloaded.”

As such, it will surely cut into profits and limit their ability to invest in services.

The announcement that the Minimum Wage will rise in April next year may also cause smaller businesses to think twice about hiring more junior or entry-level positions.

Over 21s will get a 6.7% pay boost, while 18 to 20-year-olds will get more than 16% and apprentices will enjoy an 18% uplift.

The Chancellor also announced that Capital Gains Tax, paid on profits on the sale of business assets, would increase from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers.

At the same time, Business Asset Disposal Relief, which allows gains of up to ￡1 million to be taxed at a reduced rate of 10%, will rise to 14% in April 2025 and 18% from 2026-27.

That could be a serious blow to any practice owner who had planned to sell up to fund their retirement and who will now have to revisit their plans and recalculate whether a sale will now achieve the outcome they had anticipated.

The decision could also weaken the incentive for dentists to take the risk of starting and growing their business, which could lead to even more problems accessing dental care.