Despite widespread concern for what Chancellor Rachel Reeves’s Autumn announcement would reveal, in the end, it was the Budget that didn’t bark quite as loudly as some feared. However, below are a few points that principals, especially those considering a future sale, should be aware of.
Taxes, taxes
The first consideration for principals was slightly hidden behind changes to the dividend tax rate – which is considered a formal income tax. This will affect principals who are registered as a limited company, as well as associates who trade through a limited company, which is common today. There are two elements to this.
Firstly, both the basic and higher dividend rates will rise by 2 percentage points in April 2026. This means that someone earning £130,000 per annum will pay £2,376 more in tax each year, based on them having a typical tax code. The additional tax rate for dividends has remained the same at 39.35%.
However, the other side of the coin is that an increase of 2% was announced on income from property and savings across all of basic, higher and additional rate bands. This will most affect those with multiple properties or with substantial savings and investments, so it’s worth reassessing your current portfolio to ensure you’re optimising your financial situation.
Staying with limited companies, there was a change to how a salary sacrifice would work. Principals of private practices who can’t access the NHS pension scheme will often put a large amount of their business profit straight into a pension pot, on which they don’t pay any National Insurance or corporation or tax. It’s often considered a highly tax-efficient way of profit extraction if you don’t need the cash immediately. However, from April 2029, the amount of money that can be moved like this will be capped at £2,000. Ultimately, principals who are employees or who operate their own limited company would have to pay 23 percentiles more in tax to put the same money into their pension, once Employers’ and Employees’ National Insurance Contributions are taken into account. However, whether it would actually be implemented so close to the next General Election is another matter – it may have only featured as a way of balancing the books.
A ripple effect
Among the announcements was that the National Living Wage increased by 4.1% to £12.71 for those over 20, while the National Minimum Wage rose 8.5% to £10.85 for 18-20-year-olds. While those in the lower income brackets will welcome the changes, they could have a substantial impact on small businesses. A practice employing someone for 40 hours a week, the higher wages and current pension pot will cost the practice an additional £1,227 per year. If 10 members of staff on the payroll are affected, that creates an additional annual cost of £12,270.
The real challenges will be experienced by any practice looking to go to market in the near future. Using a multiple of 7, that would equate to a valuation reduction of £85,890. For private practices, at least some of the difference could be recuperated by raising patient fees accordingly. For NHS practices, while corresponding fee increases will no doubt be introduced in due course, and likely be backdated, this may not occur until late 2026. Anyone wanting to sell in the next 6-12 months would be left with a cost burden that can’t be supported with an increase in income.
Other considerations
Potentially of smaller impact to dental professionals was the introduction of tax for electric vehicles, at 3p per mile. Hybrid cars will be taxed at 1.5p per mile, but for those that only offer 30 or 40 miles before switching to fuel, this combined with increased fuel prices of 5p a mile could leave long-distance drivers out of pocket over the year.
Other, less headline-grabbing points of note include:
- Unspent pensions will form part of your estate for inheritance tax purposes from April 2027.
- Personal income tax thresholds have been frozen, although in our current inflationary environment, even standing still, many people will be paying more income tax.
- The Employers’ National Insurance threshold has also been frozen, which will mean yet another proportional increase in the cost of employing people.
- Principals used to be able to transfer half or more of the business to an employee on an EOT basis, with 100% tax relief available. That has now been reduced to 50%, and although it is rare in dentistry, it would be a consideration for vendors ahead of sale.
If you have any questions or concerns about how the Autumn Budget might impact you or your practice, the experts at Dental Elite would be more than happy to help.
For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
Author Bio: Luke Moore
Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With over 19 years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.
