The Chancellor’s Budget this year may not have headline tax hikes, but the details matter especially for dental professionals. From frozen allowances to changes in dividends, pensions, property taxes, and business rates, here’s what you need to know.
1. Personal Allowances Frozen Until 2031
Originally due to unfreeze in 2028, personal allowances will now remain static until 2031. This is part of the government’s fiscal drag strategy—keeping thresholds fixed while inflation pushes incomes higher.
Impact on Dentists:
- Frozen tax bands mean that as your income rises with inflation, more of it falls into higher tax brackets without any rate changes. Personal Allowance £12,570 starts to reduce once your income exceeds £100,000. For every £2 earned above £100,000, you lose £1 of your Personal Allowance. At £125,140, your Personal Allowance is completely removed, meaning all income is taxable, and nothing is tax free.
- Child Benefit begins to taper from £60,000 and is fully removed at £80,000.
- Tax-Free Childcare accounts and free childcare hours are lost once income exceeds £100,000.
- Crossing £125,000 pushes you fully into the additional rate tax band, increasing your marginal tax rate significantly.
- Combined effect: Higher tax bills, loss of allowances, and reduced family benefits—all without headline tax rate changes.
Tax Tip:
Planning pension contributions remains the best way to reduce tax bills, keep allowances and preserve benefits.
2. VAT Registration Threshold
The anticipated reduction of the £90,000 registration threshold, which could have impacted dentists providing cosmetic or facial aesthetics services subject to VAT, did not occur.
3. National Insurance
No changes to National Insurance were announced. As with income tax, no changes to allowances and rates mean more income is liable to National Insurance payments, as the fiscal drag nets more National Insurance as incomes rise.
4. Pension Tax Relief & Salary Sacrifice
Tax relief for salary sacrifice schemes is restricted to a maximum of £2,000 for pension contributions, which restricts the tax-efficient pension contributions available to employees in dental practices. This alteration does not impact dentists who are functioning as company directors or shareholders.
5. Dividend Tax Rise
Dividend tax rates increase by 2%. A typical dentist paying £75,000 in dividends to themselves and a spouse could see an extra £1,500 in tax.
Tax Tip:
Review whether a salary might be more efficient than a dividend.
6. Property Income Tax
A 2% rise in property income tax means landlords earning £10,000 rental profit will pay an extra £200.
Tax Tip:
Pension contributions may offset this rise for higher-rate taxpayers, but details are pending.
7. Council Tax Surcharge
Collected via council tax bills, High-value properties face new charges:
- Over £2m: £2,500 extra per year.
- Over £5m: £7,500 extra per year.
8. Employee Ownership Trust (EOT) Relief Cut
Selling your practice into an EOT is no longer fully tax-free. Relief drops from 100% to 50%, meaning half the transfer is now subject to CGT.
9. Electric Vehicle (EVs) Changes
- Grants Extended: Up to £3,750 off new EVs under £37k.
- Road Charge from 2028: 3p per mile for EVs, 15p for hybrids.
- Driving 10,000 miles/year = £300 extra for EVs.
Tax Tip
Dentists with electric cars in a company will get tax relief on this extra payment.
10. Minimum Wage Increase
From April, the National Minimum Wage rises to £12.71/hour. Payroll costs will rise, but apprenticeship incentives remain good news for smaller practices recruiting trainees.
11. Business Rates
Permanent reductions announced for retail, hospitality, and leisure—but not healthcare. Dental practices remain outside this relief for now.
What Should Dentists Do Now?
- Review tax planning: Frozen thresholds and allowances will bite.
- Check remuneration strategy: Salary vs dividends.
- Plan for property and council tax changes.
- Factor in Electric Vehicle costs.
- Practices budget for higher payroll costs.
