How will the 2024 Budget Impact the Dental Sector?
Author: Sam Evans
Key Contact: Jon Lawley
On 30 October 2024, Rachel Reeves delivered Labour’s first budget as a majority government for fourteen years. Whilst the government had already briefed many of the changes to the press in advance, some of the announcements were surprising and reflect the difficult economic situation that the government is currently facing. This article seeks to summarise the relevant changes for the dental sector and how certain measures may impact dentists.
Increased NHS funding
The government has committed to an increase in the NHS budget of £25.7 billion. Whilst further spending will no doubt be welcomed by the sector, the British Dental Association (BDA) recently expressed concern that the UK Treasury was not committing additional investment to underpin its “rescue plan” for NHS dentistry and was instead relying on existing budgets. It remains to be seen how an increase in the overall NHS budget will translate into improvements or support for NHS dentistry (including its earlier plan to reform the NHS dental contract and widen access to NHS dentists for those who need them).
Capital Gains Tax (CGT)
With effect from 30 October 2024, the main rates for CGT increased from for lower and higher rate income tax payers from 10% and 20% to 18% and 24% respectively. Many commentators had expected the rates to be increased higher, possibly with a new higher rate of 28%.
In addition, the chancellor announced some changes to the rates of CGT applicable to Business Asset Disposal Relief (BADR). This relief allows some taxpayers to benefit from a reduced rate of 10% on any sales of qualifying business assets. In the dental sector, this will normally apply to practice owners who sell shares in their company. For any such sales made on or after 6 April 2025, the rate will increase to 14% and will increase again to 18% for sales made on or after 6 April 2026. From a succession planning perspective the outlook remains uncertain as practice owners could either accelerate their exit plans ahead of the implementation of the BADR changes in April, or hedge their bets and delay sales in the short term in the hope that the situation improves in the coming years.
Employers’ National Insurance contributions
From 6 April 2025, employers’ national insurance contributions will increase by 1.2% to 15%. The level at which employers start paying NICs for each employee will also fall from £9,100 to £5,000. This will undoubtedly impact profit margins for practices across the board and may restrict the ability of practice owners to invest their profits productively into new facilities or staff.
On a more positive note, the chancellor also announced that the Employment Allowance will increase, allowing eligible employers to reduce their National Insurance liability by up to £10,500. In the dental sector, this will benefit practices who primarily offer private treatment, meaning that those practices who derive 50% or greater of their income from the NHS will remain excluded. We would recommend that practice owners who are unsure if they qualify for this allowance seek expert advice as this could be a useful means to lower overall costs.
Interestingly, the BDA has already urged the government to extend the existing reliefs from National Insurance contributions which exist for hospitals to dental practices. Given the current state of the public finances, it remains to be seen if the government will respond positively to these proposals.
Inheritance Tax (IHT)
From a succession planning perspective, the chancellor announced two specific changes to IHT which may affect dental practice owners.
Firstly, from April 2026, agricultural property relief and business property relief will be reformed so that the existing 100% rate of relief on certain business assets will only apply the first £1 million. Thereafter, a 50% relief rate will be applicable (reducing the rate of IHT payable to 20%). As a reminder, the existing regime of business property relief allows dentists, through prudent tax planning, to pass on the value of their dental business- either as a sole trader, partnership or shares in a limited company- without being subject to IHT thanks to the 100% rate of relief.
In addition, from April 2027 private pensions will form part of the basis for calculating the value of a deceased’s estate. On this basis, practice owners may wish to re-consider their retirement and estate planning to take account of the upcoming change (i.e. look to take the pension in full on retirement than an income drawdown).
National Minimum Wage
From April 2025, the National Minimum Wage paid to 18-20-year-olds will increase to £10.00 per an hour, an increase of 16.3%. The National Living Wage (NLW) paid to those who are 21 and over will also increase from £11.44 an hour to £12.21. This measure will no doubt impact practices (small or large) with high numbers of support staff who are paid at or slightly above the existing NLW and could significantly increase payroll costs (all the more so when considered alongside the changes mentioned above to employers’ NICs).
If you have any questions on any of the issues above, or for legal support in buying or selling a dental practice, contact our Corporate Healthcare team.
