Key financial takeaways for dentists

2024 has been an interesting year to date marked by a Spring Budget, the election of a new Labour government in July, an Autumn Budget, and more recently a change of government in the United States of America.

In terms of financial planning, what has this meant for dentists?

Inflation and interest rates

Towards the end of 2023 inflation was at 4%, however during the initial months of 2024 we saw a steady downward trajectory with inflation falling to 3.4% back in March, which was its lowest level in almost two and a half years. In May inflation dropped to 2% hitting the Bank of England’s target for the first time in almost three years. Throughout the remainder of this year, it has stayed within 0.3 percentage points of it, dropping down to 1.7% in September, then rising to 2.3% in October.

Although inflation strayed above the Bank of England’s 2% in October, the figures throughout 2024 have been a world away from the double-digit levels of inflation the nation experienced back in 2022, when it peaked at 11.1%. And with inflation now having significantly decreased from its peak, the Bank of England is expected to continue reducing interest rates. 

The delivery of Labour's October Budget, however, may well have created inflation ripples due to higher government spending, the rise in National Insurance Contributions (NICs), which could potentially lead to higher prices, with a knock-on effect of raising the inflation forecasts and slowing the pace of interest rate cuts.

The October Budget

Some of the changes announced in the October Budget, will likely impact dentists and in particular practice owners. Income Tax will remain frozen until 2027/28 and as a consequence this could potentially see more dentists pulled into higher rate tax bands. Changes were also announced surrounding Business Asset Disposal Relief (BADR). Currently the first £1million is taxed at a reduced rate of 10% - from April 2025 this will increase to 14%, and then again to 18% in the following tax year (April 2026/27). This will impact any dentist looking to sell their practice and use the proceeds of the sale to fund their retirement. 

One other significant change was the increase in Employer National Insurance Contributions (NIC); The rate at which employers pay NIC has been increased and the threshold at which employers pay National Insurance has been reduced meaning that wage bills for practices will be significantly higher – something that is likely to put pressure on margins and could ultimately impact the take-home pay of practice owners.

In addition to the rise in general business expenses, the general shortage of dentists is increasing their market value, and the Budget will increase the costs of employees, both at a time when debt servicing charges remain relatively high.

Another key Budget takeaway was regarding the changes to Inheritance Tax (IHT). Currently pensions are not included in the IHT net. As of April 2027 however, this is set to change, and any unspent pensions will be included in the IHT net and potentially charged at 40%, depending on the size of the estate.

A pension can be a substantial asset, and as such could potentially have a significant impact depending on the circumstances and plans.

It is important to remember however, that these changes are not due to be implemented until April 2027 and that the government has not yet finalised the details. Pensions still remain a tax efficient form of investment, and their main objective remains unchanged – that is to save for retirement and to provide capital and income during retirement.

Savings and investing

Iain Stevenson, Head of Dental at Wesleyan Financial Services says:

“It’s not what did happen in 2024, it’s more a case of what didn’t happen – whilst we had an election, change of government and a subsequent Budget with some significant changes announced, unlike previous years, 2024 has not experienced any major crisis which have dramatically impacted attitudes in relation to financial planning or massively dented confidence in terms of saving and investing.

Over 2024 we have seen an increase in savings and investment, in particular into pensions. There has been a 29% increase to pension sales this year in the dental segment at Wesleyan. Something which may demonstrate that dentists are thinking longer term and considering their retirement planning and exit strategies.

Part of the reason for this is due to a situation of easing inflation and signs that interest rates are beginning to drop - this may suggest a sense of greater confidence among the population that people are prepared to save for the long term. 

Looking ahead to 2025 and thinking about how the year could pan out will probably be heavily impacted by what the government decides to do in terms of supporting the dental industry. Whatever their dental rescue plan looks like, will be significant either way.

I would stress however that it is still very important for dentists to seek professional financial guidance because the market remains complex rather than competitive and is subject to changes, making it at times challenging to navigate. Plan early, ensure that you speak to your dental specialist financial adviser - someone who really understands the dental profession and takes the time to properly understand your individual circumstances. The future of you, your family and even your practice and business, depend on making well informed decisions.”

Please bear in mind that advice in relation to inheritance tax planning is not regulated by the Financial Conduct Authority. Tax treatment depends on individual circumstances and may be subject to change in future.

Bear in mind that the value of investments can go down as well as up and you may get back less than you invest.

If you would like support or guidance on understanding your financial position, speak to a dental Specialist Financial Adviser or Planner at Wesleyan Financial Services for a financial review by visiting wesleyan.co.uk/financial-advice/dentists or by calling 0808 149 9416. Charges may apply. Learn more about our charges here.