Tax hacks: A 2025 guide to spring cleaning your finances

As a dentist, you’re no stranger to long hours and high standards of care. However, there’s a critical area of your finances that also requires attention: Time-limited and tax-efficient saving opportunities.

Frozen tax thresholds and allowances make it even more important to plan ahead and maximise your tax efficiency well before the new tax year begins on 6 April 2025.

The latest Autumn Budget delivered in 2024 did little to address key tax thresholds that have been frozen, leading to what’s known as "fiscal drag". This means that more people could end up paying higher taxes, simply due to inflation and wage increases, even if their real income hasn’t changed.

Now is the time to make the most of the current allowances. Here are some areas to focus on:

Pension contributions – Smart savings for the future

Pensions are one of the most tax-efficient ways to save for retirement. The annual pension allowance remains at £60,000 or 100% of your relevant earnings (whichever is lower). Contributions into pensions receive tax relief, which can significantly boost your retirement savings.

If you haven’t used your full allowance in previous years, you can carry forward unused allowances from the past three tax years. This can be a valuable option for higher earners who might not be making full use of their pension allowance each year.

For dentists who participate in the NHS Pension Scheme, it’s important to note that contributions are calculated differently, with an actuarial process taking into account how much your pension has grown. This can complicate matters, so it can be helpful to seek expert advice to avoid inadvertently breaching your pension allowance.

ISAs – A key tax-free investment option

Individual Savings Accounts (ISAs) are another effective way to grow your wealth tax-free.

For the 2024/25 tax year, the ISA allowance remains at £20,000 per person. This allowance can be spread across different types of ISAs, such as cash ISAs, stocks and shares ISAs, and innovative finance ISAs, depending on your risk profile and savings goals. For couples, this means a combined £40,000 of tax-free savings.

Additionally, you can open a Junior ISA for your children or grandchildren, which has a £9,000 limit for the 2024/25 tax year, helping you build wealth for future generations.

It’s important to note that ISA allowances don’t carry over from year to year, so if you don’t use them, you lose them.

The value of investments can go down as well as up, and you may get back less than you invest.

Gifts – Take advantage of the annual exemption

If you're looking to reduce your estate's value for Inheritance Tax (IHT) purposes, gifting can be a powerful strategy. The annual gift allowance allows you to gift up to £3,000 per year, with unused allowances rolling over for one year.

Charitable donations are another great option to reduce taxable income. Charitable gifts can reduce your taxable income, potentially bringing it below the higher rate tax threshold of £125,140 in 2024/25 (down from £150,000 in 2023/24), helping preserve your Personal Allowance.

Inheritance Tax planning is not regulated by the Financial Conduct Authority.

Strategies for practice owners

If you own a dental practice through a limited company, you can take income as dividends instead of salary. This strategy can help reduce the amount of Income Tax and National Insurance Contributions (NICs) you pay.

The dividend allowance has reduced to £500 in 2024/25. While dividends remain tax-efficient compared to salary, the lower dividend allowance means you need to plan your income distribution carefully.

Additionally, by contributing some of your company’s pre-tax profits into a personal pension, you can reduce the company’s Corporation Tax liability, providing an additional tax-saving opportunity.

If you’re planning to sell assets, such as your dental practice, Capital Gains Tax (CGT) dropped to £3,000 in April 2024, meaning you could face higher CGT bills for any gains above this new threshold.

Speak to a specialist

Tax planning can be complex, especially with the constant changes in tax legislation. Whether you’re looking to maximise your ISA and pension contributions, reduce your tax liability through gifting, or optimise your income as a practice owner, working with a Specialist Dental Financial Adviser, even alongside your accountant, can ensure you make the most of the available allowances and strategies.

At Wesleyan Financial Services, our expert advisers specialise in helping dental professionals to navigate the intricacies of financial planning and tax-saving opportunities. We can help you take proactive steps to protect your wealth and secure your financial future.

For tailored advice and to take control of your financial planning, speak with a dental Specialist Financial Adviser at Wesleyan Financial Services. Charges may apply. You will not be charged until you have agreed to the services you require and the associated costs.

Tax treatment depends on individual circumstances and may be subject to change in the future.