How to prepare financially for 2025

As we enter the New Year, there’s an increased awareness of what we can do to improve our lives. This year, perhaps it’s time to focus on mastering your financial planning.

Dentists have unique financial opportunities and challenges. While a traditionally high income can provide greater financial freedom, it also comes with complex financial decisions around tax, investments, savings, and long-term planning.

Whether you're a newly qualified dentist, an associate focused on professional development or a practice owner, preparing for 2025 involves more than just managing cash flow—it’s about making strategic financial moves that will enhance wealth, reduce tax liabilities, and ensure a secure future. Here’s how you can prepare financially for the upcoming year:

Make the most of your ‘tax hacks’

One of the most crucial steps is to take full advantage of tax-efficient investment strategies. 

Pensions offer significant tax benefits. For high earners, contributing to a pension not only provides retirement security but can also reduce your annual tax burden.

The government offers tax relief on pension contributions, allowing you to contribute up to £60,000 per year (known as the annual allowance) and receive tax relief on that amount, reducing your taxable income.

Once you earn over certain thresholds, your annual allowance may be tapered, meaning you can contribute less before facing higher tax rates.

In any case, it may be beneficial to work with a financial adviser to ensure you’re making the most of your pension and exploring options, particularly if you decide to reduce or cease your NHS commitments and replace them with private work.

Then you have Individual Savings Accounts (ISAs), which allow you to save and invest without paying tax on the returns.

For the 2024/25 tax year, you can contribute up to £20,000 per year across all ISAs. High earners should ensure they are making full use of this tax-free allowance. Stocks and Shares ISAs, can provide long-term growth potential, while Cash ISAs offer a safer, interest-bearing option – you can speak to a financial adviser to identify which is right for your circumstances and attitude to risk.

The government regularly reviews and updates tax policy, and high earners may be more affected by potential tax changes. Keeping an eye on upcoming budget announcements and understanding how they might impact you is important.

Get retirement ready

The top financial priority for dentists we surveyed, at 36%, was saving enough for retirement. To achieve this, it's essential to first understand two key factors: the lifestyle you want to maintain and when you plan to retire.

According to the survey, 57% of respondents felt they would need £60,000 or less per year to enjoy a comfortable retirement. The Retirement Living Standard suggests that a 'comfortable' retirement for a single person requires £43,100 annually, and £59,000 for couples. This level of income provides more financial freedom than average, with some luxuries like dining out and regular holidays, but it may not meet the aspirations of higher earners looking for a more plentiful post-retirement lifestyle without having to make sacrifices.

For example, £43,100 a year would allow a single person to spend £70 per week on food, dine out occasionally, drive a small car replaced every five years, and take a two-week 4-star holiday in the Mediterranean, along with three long weekends in the UK each year.

Does this align with your retirement goals, or would you like more (or less) from your golden years? If not, it may be helpful to consult with a financial adviser who can use a cashflow modeler to project both your current and future income and expenses. This tool will help you develop a realistic and informed plan to ensure your retirement aspirations are met.

Seek professional financial advice

Finally, working with a specialist financial adviser can help you foster better returns. In 2017, the International Longevity Centre (ILC) conducted a survey to assess the value of financial advice, quantifying for the first time the impact on financial outcomes for individuals.

In 2019, the ILC released an updated report revealing, on average, financial advice can increase pensions and financial assets by £47,000 at retirement.* It also highlighted that maintaining an ongoing relationship with a financial adviser contributes to improved financial outcomes.

The complexities of tax laws, investment strategies, and retirement planning can overwhelm even the most financially savvy individuals. A financial adviser can help you navigate the intricacies of wealth management within the field of dentistry, ensure you're making the most of tax-saving opportunities, and create a plan tailored to your specific financial situation.

Preparing financially for 2025 as a dentist requires a multi-faceted approach, from maximising tax-efficient savings and investments to planning for long-term goals like retirement and exit strategies from practice ownership.

By speaking to a Specialist Financial Adviser at Wesleyan Financial Services, dentists can ensure their wealth continues to grow while minimising tax liabilities, safeguarding their future, and making informed decisions for the years ahead.

Charges may apply. You will not be charged until you have agreed to the services you require and the associated costs. Learn more about our charges.

Keep in mind that the value of your investments can go down as well as up, and you may get back less than you put in.

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

* International Longevity Centre UK - Receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/16.

About Wesleyan Financial Services’ research

Findings are based on consumer research of 658 dental professionals conducted by FMC on behalf of Wesleyan Financial Services between 9th July and 28th August 2024.