A new tax year means new rules. But changes don’t have to mean complications if you take expert advice, says Richard Lishman of money4dentists
The new tax year began on 6 April, meaning all businesses and individuals should be making plans to ensure they maximise any incentives that reduce their liability.
One area that has seen significant changes is that of pensions. In fact, it’s fair to say that pensions have been nailed pretty heavily by the changes that have taken place this year, and dentists could be affected heavily.
Significantly, the lifetime allowance for pension contributions has been reduced from £1.8m to £1.5m. If you have more than that in your pension fund at retirement there will be a tax penalty. The start of this tax year also saw the end of the fixed protection scheme for those who will be over the new £1.5m limit. Those who missed out on applying for fixed protection but have £1.8m in their pension fund could face a tax liability of around £120,000. Unfortunately the time for planning in this particular situation has now passed, but there are still ways to save tax
There is also a new limit to how much can be paid into an individual’s pension fund in any one year: £50,000. This includes contributions from the NHS or any other employer, and also gross Personal Pension contributions. The reduction in the top rate of income tax (from 6/4/2013), from 50% to 45%, naturally means a corresponding reduction in the tax relief given to pension contributions.
It remains hugely beneficial to receive an NHS Pension, with employees paying in up to 10.9% of their income and the NHS contributing around 14 per cent. Taking as an example two dentists earning £100,000 a year, one in the NHS and the other privately, illustrates the point. To achieve £25,000 worth of contributions would cost the private dentist £25,000; the rate of NHS contributions mean his contemporary in the NHS would pay just £10,900 for the same benefits.
ISA accounts remain a popular and tax efficient means of saving. The annual ISA investment allowance from 6 April 2012 has been raised to £11,280, which equates to £940 per month. Up to £5,640 of the allowance can be saved in a cash ISA, with the balance in a stocks and shares ISA.
When considering which kind of ISA to choose, it is wise to view it as part of an overall investment strategy that balances your preferred level of risk. If you are a speculative investor, then cash ISAs may not be for you, because they underweight risk and the possible upside of growth is limited. But the choice should be viewed in line with other investments to achieve the net overall balance of risk.
Careful planning and record keeping should enable practitioners to make sure they are making the most of any tax-deductible expenses too. Even if they are just buying a pair of loupes it is essential to list all investment in the business to maximise the tax relief you are entitled to claim.