The new government has delivered few surprises in the first Labour Budget delivered since 2010. In terms of the impact on the dental market, some of the changes may affect larger practices, though the impact won’t be as extreme as some had feared.
Changes to Employer’s National Insurance Contributions (ER NIC), Inheritance Tax (IHT), Business Rates and Capital Gains Tax (CGT) mean higher costs for some, but changes to Employment Allowance could mean some smaller practices will be slightly better off with independently owned predominately private practices in the main benefiting from the Employment Allowance increases.
Employer’s National Insurance Contributions
ER NIC is increasing 1.2 percentiles, and the threshold where contributions start is coming down from £9,100 to £5,000 per employee – that’s an increase of at least £615 per employee earning over £9,100 per annum.
However, the £5k Employment Allowance will be increasing to £10.5k. Those currently operating with <50% private services could consider increasing these to benefit from the £10.5k allowance, as the allowance can’t be claimed for practices with a predominantly NHS-based income which may push some mixed practices to further decrease NHS activity.
Pursuant to this year’s Dental Elite Benchmarking Report the average revenue for a dental practice is £906,083, and the average staff costs are around 17.8% of turnover. This means the average practice should spend circa £161,000 on employed staff, assuming 6 members of staff at around £26,830 each. The impact of the reduced threshold and increased ER NIC rate in this example is £828 per employee per annum, totalling £4,968 for all 6 employees. The increase of £5,500 to the Employer’s Allowance (assuming the practice is not mainly NHS driven) will mean this practice is slightly better off as a result of the budget.
Broadly speaking, if you are a majority private practice and your total annual staff cost bill is less than £180,000 then you will be better off or broadly equal. Where you are over this amount then the change will cost you more. This is a rough estimate as it will be specific to each practice depending on the exact composition of your staff costs.
Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR)
The lower CGT rate has been immediately increased from 10% to 18%, while the higher rate has increased from 20% to 24%. Business Asset Disposal Relief (BADR) – up to £1 million lifetime maximum per person – is staying, despite fears it might be abolished.
BADR was previously 10% CGT for the first £1m of gains per person per lifetime (with main rates being charged once the £1m is utilised). From April 2025 BADR will be 14% and then 18% from April 2026.
Even with BADR, increases to CGT mean an increase on the cost of practice sale – for example, a £1.5 million practice gain will cost £60k more in CGT from April 2025, increasing to £100k when the rate increases further in April 2026.
Inheritance tax – how could the budget affect my family run practice?
From April 2027, private pensions will be subject to IHT. If an individual has more than 500k in assets, including their pension, a 40% tax will be applied on the total estate when they die (assuming £175,000 of their estate is held in a family home).
The spouse of the practice owner will still benefit from a spousal exemption. However, IHT will apply for the remaining heirs when the surviving partner dies.
Reforms to Business Property Relief (BPR), from April 2026, will introduce a £1m cap for IHT exemption. Assets over this amount will then only benefit from 50% relief (e.g. taxed at 20% rather than 40%).
Income tax and VAT
From 2028-29, personal tax thresholds will be uprated in line with inflation. The government might continue the freeze in income tax thresholds beyond that time, but this is not expected. VAT is remaining the same, but will now apply to private schools, affecting some families’ outgoings from January next year.
Business rates
While smaller, independently-owned dental practices won’t be affected by the announcements, multiple practice owners – or potentially inner city practices with large properties whose rates are calculated using the standard rate multiplier – were already to experience a significant uplift in rates from April from 51.2p to 54.6p in the £. However, this is slated to rise further as it floated that a third lower multiplier could be introduced for Retail, Leisure and Hospitality businesses funded by another increase to the standard rate multiplier.
While NHS practices can claim much of this back, predominantly private practices could pay much more in business rates.
Stamp duty
The higher rate stamp duty land tax (SDLT) is rising from 3% to 5%, affecting those who have or will diversify their investments via residential properties.
It’s worth noting that if you are looking to acquire a ground floor practice with residential flats upstairs, this is classed as commercial property for SDLT purposes, which have reduced rates.
Expert guidance
To maintain an excellent understanding of the dental market and the wider economy, consulting with specialists is a must. Dental Elite has over 14 years of experience in providing bespoke support for clients, whether they are looking to sell or buy a practice. Humphrey & Co are member of NASDAL, with a healthcare team specialising in advising dentists.
Overall, the news this autumn will not be a shock for most in the dental market as it was trailed for many weeks ahead of the announcements. Many small, single-site practices won’t see huge changes, and may even benefit until they come to sell whereas the larger, multi-site practices with more than £180k in staff costs will see a marked increase in ER NIC. If a penny off a pint doesn’t help, considering an increase to your private fees could help alleviate some of your tax burden.
For more information on Dental Elite email us on info@dentalelite.co.uk or call 01788 545 900
