The Spring Budget and the 60% tax disincentive for higher earning dentists

 On behalf of NASDAL we set out their chief observations on a Budget that portrays the Government as committed to reducing taxes for working people while ensuring higher earners pay more tax.

National Insurance Contributions (NIC) are due to reduce next month:

  • A reduction from 10% to 8% for employees
  • A reduction from 9% to 6% for the self-employed

However, the additional 2% rate on earnings over £50,270 stays in place.

The threshold for personal allowances remains frozen.  Those earning between £26,000 and £60,000 will be better off in the 2024-25 tax year, gaining more from the reduction in NIC than they lose in income tax due to the threshold freeze. The Chancellor plans for the threshold to remain static until 2028. By freezing the thresholds which determine when taxpayers start paying NIC and income tax, however, higher earners lose out. We are disappointed that Jeremy Hunt has not opted to reduce the tax rate for higher earners who under the current income tax regime lose their personal allowance once they bring home more than £100k. Doctors and dentists earning between £100 and £125k effectively pay tax at 60%, a disincentive to full-time working.

This creates an income cliff edge when a slower tapering of the personal allowance would be so much better. There are ways to mitigate this rate, especially for those who are incorporated, but it disincentivises owners from taking money out of the company, at a time when perhaps spending needs to be encouraged.

Changes to the Child Benefit system will also positively impact dental team members with families. The full amount of child benefit will be paid to families where the highest-earning parent earns up to £60k – the current threshold is £50k. Families where the highest earner earns up to £80k will be paid partial child benefit.

Under the current system, when the threshold is breached, families have to pay back the child benefit they have been given. It can be a sensitive issue for working parents to confirm how much their partners are earning and work out what should be paid back. The High Income Child Benefit Charge portrays the current government as prudently not paying benefits to higher earners, however it doesn’t work well with the current tax system.

The abolition of the furnished holiday lettings regime came as a surprise. The tax advantages of furnished holiday lets are to be scrapped from April of next year but how they transition to existing property income taxes is still not completely clear.

For owners of second homes and rental properties who are thinking of selling, the decrease in the top rate of Capital Gains Tax from 28% to 24% will be welcome news.

Though not dramatic, the changes announced in the Budget indicate a clear agenda:

  • It’s likely that this Government wants to scrap NIC altogether and move to a single unified taxation system.
  • The tax differential between the self-employed and the incorporated is gradually being reduced (although there are still more options for the owners of incorporated businesses to minimise their tax outlay with good tax planning.)

Whilst practice team members will hopefully benefit from further reductions in NIC and possibly the relaxation of child benefit rules, generally we see this as a political Budget, putting more money in the pockets of possible voters. What we would like to see is a more positive outlook among consumers – we can only hope the Budget helps with this.