There often comes a time where clinicians wish to know more about their opportunities to invest. This can take many forms, and have a significant impact on your daily workflows or your financial prospects in the short- or long-term future.
It’s essential that each decision to put money into investments is thought through and justified, with the risks balanced against the potential benefits.
Dental professionals should be aware of the types of investments they can make for the benefit of the practice or their personal life, and understand the support available to them when making these decisions, such as with a financial adviser. This is also exceptionally important when assessing the levels of tax that may be applied to any future returns and profits.
Future planning
Dental professionals need to make thoughtful considerations when investing their earnings and profits to deliver greater financial outcomes.
The Financial Conduct Authority details its ‘golden rules of investing’, which include the need to set realistic expectations and take a long-term view. This is paramount when assessing the form of investment that a clinician wishes to make.
An investment could be into a financial asset that is hoped to grow in value, beating outside factors such as inflation or interest rates in savings accounts.
Some clinicians may also see a physical purchase for the practice as an investment. This could include new equipment or an expanded surgery, which can bring added value in return by developing treatment options and widening the pool of patients that can be treated. This may increase revenue in the long-term.
The tax view
When investing there are a number of tax-focused regulations that clinicians must be aware of. There is no extra amount paid on an initial investment, but any gains made (profit) are subject to corporation tax or capital gains tax, dependent on the set of up a practice.
Professionals working as a self-employed sole trader or as part of a business partnership pay capital gains tax, but those who operate as a limited company are subject to corporation tax. By working closely with an independent financial adviser, a clinician is able to establish how they may be affected by either form of taxation.
Those subject to capital gains tax will have to establish the ‘gain’ on any investment, and owe a portion of this at the end of the financial year. Clinicians may be able to deduct some costs depending on the investment. If the investment was a treatment centre, for example, and a clinician upgraded it over time, the cost of any additions may be deducted from the taxable gain. Clinicians will owe money if they are over the capital gains tax allowance for the year running April 6 to April 5 – the allowance is £3k for the 2024 to 2025 tax year, and is subject to change moving forwards.
The rate of tax payment is dependent on the clinician’s tax band. As of October 2024, all gains that fall within an individual’s unused basic rate band (up to £50,270) are taxed at 18 per cent, and those for higher rate taxpayers are taxed at 24 per cent.
Corporation tax on investment gains
Corporation tax is based on the profits a company makes across an accounting period, including dental practices run as limited companies. You do not receive a bill for corporation tax, and instead accounting records should be kept and reviewed, with corporation tax paid by a given deadline.
At the time of writing, the main rate for corporation tax is 25 per cent, which affects companies with more than £250k profit. The ‘small profits rate’ is applicable to practices with a profit of £50k or less, and is 19 per cent. If the total profit made is between these two values, a practice may be able to claim marginal relief, which gradually increases the rate of corporation tax paid between 19 per cent and 25 per cent.
Understanding how taxes affect the return on an investment can guide clinicians on when to sell an asset, and develop expectations on how a sale can benefit them and their practice whilst still in the planning stages.
Working with Money4dentists will be of benefit to many dental professionals. The team of independent financial advisers has decades of experience working exclusively with dentists, ensuring they are in complete control of their financial situation. The Money4dentsits team, now part of the Ruby Group, can provide tailored advice on investments and tax efficient choices that help clinicians manage their income responsibly.
Investments are important to developing a healthy financial position, for both clinicians and practices. Understanding the importance of long-term expectations, and the tax implications on any gains made, helps clinicians judge the best investment choices for them – and allows them to reap the benefits in time.
References available on request.
For more information visit www.money4dentists.com