April Alterations – How The Budget Will Affect You
As 2016 begins, the announcement of the summer Budget seems like an almost distant memory. Now that the shock of the first Conservative Budget in 19 years has died down, and there has been time to evaluate the pending repercussions, it is much clearer to see how the Chancellor's Budget will affect the dental profession.
With the new tax year looming, it is important to examine how different aspects of the Budget will affect various areas. Alterations to the dividend taxation system, for instance, will invariably impact dentists – especially those drawing dividends from their own limited company.
As dividends from UK shares are currently paid for with a 10% tax credit, previous years have presented incorporations with opportunities for reducing tax. From 2016, however, all dividend income will be treated as untaxed income and the current system will be replaced with a tax-free dividend allowance of £5,000 with higher taxes on income above that. What this ultimately means, is that practices may see a 7.5% increase in tax on any dividend income above the £5,000 tax-free allowance. Although this is an aspect that will undeniably affect incorporated practices and their overall income, for those considering the decision to incorporate in the future, it would be pertinent to seek out professional financial advice to determine if it is the right decision to make. It would also be prudent to remember that corporation tax is due to fall from 20% to 19% in 2017, and to an even lower 18% in 2020.
When it comes to dividend income received on Stocks and Shares ISAs and private pensions, though, there is a glimmer of assurance. Following regulations introduced by Gordon Brown in the 1997 Budget, there will be no tax consequences for when the dividend tax reform is finally introduced.
However, with a gradual reduction in the tax-free limit on pension contributions set to take place, the celebration for pension protection is short-lived. The long-term implications of restricting tax relief claims from £40,000 to £10,000 for dentists with incomes over £150,000 per annum are not yet known, but are likely to impact the viability of pensions for dentists.
For the most part, the Budget presents changes that are so slight, they may ultimately be negligible. With impending alterations planned for employment allowance, practices may be surprised to hear that they could even benefit from George Osborne's latest Budget.
Indeed, as from April, employment allowance will be increased from £2,000 to £3,000 for all private practices. The only catch is that if 50% or more of work carried out is in or for the public sector, an employer has no eligibility.
With changes to income tax also included in the Budget, dentists will see an increase in the higher rate threshold. Initially increasing from £42,385 to £43,000, the long-term plan states that it could reach £50,000 as soon as 2020. In regards to the personal allowance, the increase from £10,600 to £11,000 could be equally as beneficial.
For those that aren't sure what the Budget and coming tax year will bring, the 2017 increase to inheritance tax reliefs may provide some solace in these times of financial uncertainty. Known as the transferable main residence allowance, it will gradually increase from £100,000 in April 2017 to £175,000 per person by 2020/21. This will essentially raise the inheritance-free (IHT) allowance to £500,000 per person. In instances where married couples jointly own a home and wish to leave it in its entirety to their children, the total IHT will be £1,000,000 – a comforting thought, no doubt, for dentists and their families coming to terms with the Budget throughout the UK.
What it all means
All in all, the Budget has revealed some interesting changes. While George Osborne and his fellow Conservatives expect to see public finances run at a surplus from as early as 2019, it would be prudent for all practices and dentists to stay cautious of what the future holds. Of course, that isn't to say that dentists are doomed, for financially crushing changes are yet to be seen, it just means that the dental profession should take note of what potential downfalls – and benefits – may occur from April 2016. If you are looking for more information and would like advice from an Independent Financial Adviser, contact money4dentists today.
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