Today’s Budget is one of the most anticipated in recent years. While the headlines promise “no major tax rises”, the reality is more nuanced. The government faces a £30 billion fiscal gap, and with income tax, VAT, and National Insurance rates politically off-limits, expect a raft of smaller, targeted changes that could significantly affect dental professionals.
The Big Picture: Fiscal Drag and Frozen Thresholds
The freeze on income tax thresholds has been extended for an additional two years, beyond 2028. This “stealth tax” means that as wages rise with inflation, more of your income will be taxed—and at higher rates. For dentists, especially those in higher income brackets, this will quietly increase your tax bill without any noticeable changes in the headline rate.
Key Changes Dentists Should Watch
1. VAT Registration Threshold
Rumours have become reality: the VAT registration threshold is under review, with strong indications it could fall dramatically from £90,000 to as low as £45,000—or even £30,000 according to some reports.
Impact:
- Most dental practices won’t be affected immediately because core dental services are exempt from VAT.
- However, dentists offering cosmetic or facial aesthetics—which are VAT-liable—could be pulled into the VAT net, adding complexity and cost.
2. National Insurance Adjustments
While headline NI rates remain unchanged, the government is considering lowering the income threshold for employee NI contributions. Currently aligned with the personal allowance (£12,570), this could drop to £5,000.
Impact:
- Employed dentists and associates would see higher NI bills.
- Self-employed dentists paying Class 4 NI would also be hit.
- Practices employing staff will face increased payroll costs.
3. Pension Tax Relief
Higher-rate tax relief on pension contributions remains under scrutiny. A flat-rate system or caps on salary sacrifice schemes (rumoured at £2,000 per year) could be introduced.
Impact:
- Dentists earning above £50,000 could lose a valuable tax advantage.
- Salary sacrifice for pensions—a popular strategy for paying practice staff tax efficiently —may become less attractive.
4. Electric Vehicle Perks
Generous tax breaks for electric cars, including low benefit-in-kind rates, are likely to be scaled back.
Impact:
- Dentists operating through limited companies may lose one of the most tax-efficient ways to fund private motoring.
5. Property and Exit Taxes
Expect a “mansion tax” on homes over £2 million and possible council tax band revaluations. There’s also talk of an exit tax for those moving assets abroad.
Impact:
- Relevant for dentists with a significant property or plans to relocate internationally.
6. Childcare Benefit Threshold
Currently, tax-free childcare tapers off at £100,000 income. Lowering this to £60,000 to anile with the start of the child benefit withdrawal would quietly raise revenue.
Impact:
- Dentists with young families could lose valuable support.
7. Stamp Duty and Capital Gains
Adjustments to stamp duty and capital gains tax (CGT) are anticipated. Aligning the lower rates of capital gains tax with the higher income tax rates on gains could be straightforward and would increase tax revenues.
Impact:
- Selling a practice or investment property could become more expensive.
Confirmed Budget Highlights: What We Already Know
- Income tax thresholds frozen until 2030 – extending fiscal drag.
- National Living Wage rises to £12.71/hour – increasing payroll costs for practices by 4.1%.
- Extra NHS funding – including £300m for technology upgrades and expansion of integrated “Neighbourhood Health Services” (dentistry included).
- New Electric Car Grant extended for one year – but expect future restrictions.
- Mansion tax introduced – annual levy on properties over £2m.
What Should Dentists Do Now?
- Review your tax planning: Factor in frozen thresholds and potential NI changes.
- Assess VAT exposure: If you offer aesthetics, prepare for possible registration.
- Monitor property plans: CGT and stamp duty tweaks could affect timing of sales.
- Revisit pension strategy: Salary sacrifice caps could hit practice owners who plan to be tax-efficient.
- Plan for payroll increases: Rising minimum wage and NI changes will squeeze margins for practice owners
Bottom Line
This Budget focuses less on headline tax increases and more on nuanced changes that enhance government tax revenue while adhering to manifesto commitments. For dentists, the intricacies are crucial, and these specifics typically emerge after about a week. In the following days, as the budget dust settles, we will inform you how these details impact your practice, personal finances, and long-term strategies.
