As the tax year end approaches on 5 April 2025, Aaron Prested explains why now might be the time for dental professionals to review their financial situation and take proactive steps to optimise their tax efficiency.
Much like a regular dental check-up, addressing your finances before the tax year closes can prevent costly missed opportunities further down the line.
To make sure you’re well-prepared, here are five key actions to take before the end of the tax year.
1. Fill your annual pension allowance gaps
Pension contributions are one of the most effective ways to reduce your taxable income while preparing for retirement. They not only help you save for the future but also provide valuable tax relief in the present.
For the 2024/2025 tax year, the annual pension allowance is £60,000, or 100% of your earnings – whichever is lower. If you haven’t used your full allowance, consider making contributions before the tax year ends. What’s more, if you haven’t maximised your contributions over the past three years, you can carry forward any unused allowance. This could allow you to increase your contributions and reduce your taxable income for the current year, helping you lower your tax bill.
For NHS dentists, however, pension calculations are a bit more complex. The annual allowance for the NHS pension is based on the growth of your pension pot rather than the amount you contribute. It’s important to keep track of these growth figures, which can include factors like inflation and income, as they may impact your annual allowance.
2. Make the most of your ISA allowance
An Individual Savings Account (ISA) is one of the best ways to grow your savings without paying tax on interest or capital gains. The ISA allowance for the 2024/2025 tax year is £20,000 per person, and it’s a great opportunity to protect your savings from tax erosion.
The type of ISA you choose should be aligned with your objectives and time frame. For short-term goals (within five years), a cash ISA may be appropriate, offering safety and liquidity. For medium-term goals (five to ten years), a stocks and shares ISA could provide greater growth potential, though it carries more risk. And for long-term savings, particularly for retirement, a Lifetime ISA or a pension might be the right fit.
Maximising your ISA allowance is essential, as you cannot carry over unused allowances from year to year. If you haven’t fully contributed this year, make sure to take advantage of this tax-efficient savings tool before the deadline.
The value of investments can go down as well as up, and you may get back less than you invest.
3. Review your practice structure
The way you structure your dental practice can have a significant impact on your tax bill. If you’re operating as a sole trader, it may be worth considering incorporating your practice as a limited company. Doing so could enable you to take a mix of salary and dividends, potentially lowering your tax liability.
For those who haven’t yet reviewed their practice structure, now is the time to consult with a dental specialist financial adviser to see if incorporating could benefit you. This decision is similar to choosing the most appropriate treatment for a patient – it’s about tailoring your approach to achieve the best financial outcome.
4. Claim capital allowances: don’t let investments go untreated
Much like how you would claim for medical expenses, you should make sure to claim capital allowances for any significant investments you’ve made in your practice. This includes dental equipment, X-ray machines, or even practice refurbishments. For the 2024/2025 tax year, the annual investment allowance (AIA) allows you to claim up to £1 million on qualifying assets.
Claiming these allowances will reduce your taxable income and lower your tax bill. If you’ve made significant purchases in the past year, ensure you’ve documented them properly and are claiming the full value of these items under the AIA before the tax year’s end.
5. Protect your legacy with gift allowances
While not often at the forefront of most dentists’ minds, estate planning and inheritance tax are essential considerations for high earners. One strategy is to take advantage of the annual gift allowance, which allows you to give up to £3,000 per year without reducing the value of your estate for inheritance tax purposes. This can help reduce your estate’s taxable value, potentially lowering future inheritance tax liabilities.
For dentists with children, a Junior ISA may also be a useful tool for transferring wealth to the next generation. With a £9,000 annual allowance for Junior ISAs, you can help build a tax-efficient nest egg for your children, which will automatically transfer to their own ISA once they turn 18.
Taking action now, rather than waiting until the last minute, could save you money and ensure you’re well-prepared for the future. Much like keeping a patient’s dental health in check, staying proactive with your finances will help ensure long-term financial success.
Inheritance tax planning is not regulated by the Financial Conduct Authority.
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