Dentists Who Invest Podcast
Official Podcast of the Dentists Who Invest platform. Talking all things investing, money and finance with a dental spin. Have you ever wondered how you can grow your wealth and protect your hard earned money as a Dentist? We've got you covered. Featuring famous guests such as Andrew Craig, Edward Zuckerberg and Benyamin Ahmed we delve deep into EVERY aspect of finance to educate and empower ALL Dentists.
Dentists Who Invest Podcast
How Will Keir's Upcoming Budget Affect Dentists? with David Hossein
Want to become as tax efficient as possible?
Connect with David here: https://www.dentistswhoinvest.com/david-hossein
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Could capital gains tax soon mirror income tax? In this episode, we dive deep into how Keir’s upcoming budget could reshape the tax landscape for dentists. Our insightful guest, David, explores the 2024 budget’s potential tax changes, including how a £22 billion shortfall in public finances could lead to adjustments in capital gains tax, inheritance tax, and employers’ insurance. With Keir’s upcoming budget on the horizon, we focus on how these shifts might impact assets like stocks, shares, and dental practices, encouraging proactive steps in the current tax climate.
As Keir’s upcoming budget looms, we also examine potential alterations in pension contributions and national insurance charges. David shares his expert take on inheritance tax exemptions, rising capital gains tax rates, and how these changes could affect your financial planning. Should you sell your assets or contribute to your pension ahead of the budget? We break down the timing of these decisions to help secure your financial future amidst uncertainty. Stay informed and ready for whatever Keir’s upcoming budget brings by tuning into this crucial discussion.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.
Hey guys, welcome back to the Dentists Who Invest podcast. This is a super important podcast and contemporaneous podcast, because we're here to talk about how we predict or speculate that the budget is going to look from here in a few weeks. Whenever that announcement is made, there's some things that he's actually already came out and said, so there's a few concrete things. We're going to touch on those. However, a good portion of this podcast is speculation, and even the inverted commas concrete things might change as well. I guess, David, because it's just a promise, isn't it?
David:at this point and politicians have never broken a promise. They don't tell lies.
Dr James:They don't change things around, they're straight as an arrow, they're fine, they're good. No, I'm kidding, it's so. Really, I guess it's best to proceed from this point uh, under the guise that it's all speculation, but we will. We will mention which ones uh have been. How can we say uh, people you know, we'll mention, we'll comment on what's been said so far in terms of being as definitive. You know the concrete stuff and what they've came out and said, the politicians and what have you, because you told me a few things off camera that I didn't know, David. So we're going to get into that in just a second. Anyway, David, I'll put the ball in your court in this one. Where do you feel is a good place to start?
David:um.
Dr James:So if you I don't know if I can share the screen I've got some slides, let me try and let's share the screen, and then what it might be helpful to do is have as much of an audio description as possible, because I'm just super conscious that this will be going out on the podcast too For people who are watching the video. It'll be shared on YouTube and also the Dentists Who Invest website, if anybody would like to see these slides, and we'll do our best to explain them as we're talking as well, so that the podcast listeners don't miss out on anything yeah, thank you.
David:I'm supposed to start and get the uh thing running all right. So, budget predictions 2024. So we're expecting this at the end of the month, the 30th of october. Um, that's when we'll get the actual, final, real results. Um, massive disclaimer on this. This is not advice, financial tax or legal. Um, do take proper advice. This is we don't know what it will actually be until we see it in black and white. There have been some hints that have been given, things in manifestos, things that have been said, so we are trying to read between the lines and predict what we think might happen. But if anything in this webinar gives you a kind of proof of thought that maybe I should be doing this, reach out to your accountant and, you know, have a proper conversation with them. So what's the problem? The problem is that Labour say they've got a £22 billion black hole in the public finances, so the Chancellor, rachel Reeves, has warned that the budget will be painful. Those are words that have actually been used, so we're being prepped for that. However, in the Labour manifesto, they did say that they're not intending on touching income tax, employees' national insurance, vat and corporation tax, so we're not forecasting changes in those areas those areas however, let's see until it's in black and white and incorporation tax. I would also include full expensing of capital allowances. That's something that we can do at the moment. If you buy an asset, you can get a full tax write-off in the first year. I'm not expecting any changes there either, so let's wait and see with that one. So what that means is what's left. So if you leave the stuff they say they're not touching, what are we left with? And that leaves us with employers insurance, capital gain stacks, inheritance stacks and other things like stamp duty or vehicle duty. So this is where we're thinking it could be going.
David:Capital gains tax is the big one. It's big for anyone who has an asset. So capital gains tax is the tax that you pay when you sell an asset. So it's calculated as the proceeds of sale less the cost of what you paid to buy the asset and then the incidental costs. So it's different to income taxes on your income. This is a tax that's on assets that you sell. So assets can include things like stocks, shares, a dental practice, investment properties, crypto assets, for example. Now the current rates are on screen there. We've got 18% and 24% for residential property, and the rate depends on what your income tax rate is. If you're a basic rate taxpayer which most dentists won't be, but if you sell a property, you'll pay 18%. But if you're a higher rate taxpayer, that becomes 24%, and for other assets it's 10% and 20% respectively. So this is one thing we do think they are looking at.
David:Capital gains tax has been messed with a lot by various governments. They come in and they play with it. We've gone from lots of different rates over history too many to go through, to be honest. An example that I wanted to run through, which illustrates the point, is very relevant for practice owners. We are seeing the practice sale market go through a bit of a phase right now. People who can sell before the end of October have been working very hard to get that done, so they capitalize on the current rates. Those who know they can't are waiting for the budget to come out. Then we'll know what the tax position will be for those people.
David:So I'm just trying to move something on screen. How do I do this? There you go, yeah, right. So if you can see there, this is a worked example. So we've got a practice owner. He sells his practice for £2 million. He paid £1 million for it when he first bought it. That gives him a gain of one million pound. Every taxpayer gets the first 3,000 pound exempt. That's called your annual exemption. It used to be 12,000 pound many years ago and it's been halved consistently. So it's gone from 12 to six to 3. Not generous at all. So you take that off. What's left is the taxable gain 997,000.
David:At the moment we have business asset disposal relief, which is if you sell a business asset on a dental practice, is a dental practice is a business asset, it can be taxed at 10%. 10% is one of the lowest rates of tax that we've got. We all like that. People build businesses to pay lower rates of tax when they sell it. It's a fundamental motivator for entrepreneurs to build a business because they can pay lower rates of tax. It's part of how the economy works.
David:But they are looking at it and I think this will be messed with. Possible changes include that £3,000 might go to zero. It's very possible the reliefs that we have available could be changed. So business asset disposal relief might go from 10 to 20 or more radically and it's something that has been talked about capital gains tax could simply switch to being the same as income tax. So 45% potentially on a gain that size, which would be horrible. It would look like this the same example dental practice owner sells the practice for £2 million. In the first situation, when you wash it through the 10% rate is £99,000 capital gains tax. If it was put to 20%, that becomes just shy of £200,000. If it was aligned with income tax it becomes £448,000.
Dr James:And just to clarify you might have mentioned this the business asset disposal relief. This is only in this example, right? It wouldn't be outside of that, because then it's 20 over the first 50k of taxable income, right? This is only in the business asset disposal relief example, right?
David:yes, it's only for business assets. If it was something else, I mean we talked about residential property, but if it was, say, um, stocks and shares or crypto, it would be 10, so it'd be 20 percent for um. For a higher tax payer, that would be the current tax and that would go from 20 to 40 to 45, subject to the rate of tax that you're paying on your income yes, so it's very likely that any in this example they've made a profit of a million.
Dr James:So if they made a profit of 1.2 million, well, the first million would be 10%, but then anything over that is probably going to be 20%, realistically Correct, yeah, okay, just to clarify, cool.
David:Yeah, it is possible, and this is pure speculation, but politicians do this sometimes.
David:They give with one hand and take with the other. So what they might do is take the 10% to 20%, but increase the pool of assets that you can apply it to from £1 million of lifetime gains back to what it used to be when it used to be £10 million worth of gains. So they could put it to 20% on something higher maybe not £10 million, but politicians like to do this. They seem to be giving as well when they take. So that could be a sneaky trick that's thrown in there, but we shall see. It's pure speculation. We just don't know until we see it. Okay, so that's the main on capital gains tax that has been talked about. What does that leave us then? So other capital taxes are things like inheritance tax and taxes on pensions. I think those are two areas that potentially could go after. They could remove the inheritance tax exemption on pension funds, so the moment you pass a pension down to a state, that exemption from tax could be removed. It would give them quite a bit. I think current estimates of pension tax relief is about £50 billion per annum, so that's a big area for them to target. It makes sense in terms of pensions. They could remove business property relief from inheritance tax. I'll explain what that means. So if you pass down a business to your children, there's no inheritance tax on it, it's called business property relief. That could be removed. That would give them 40% or whatever those values are that are passed down.
David:Pensions is something that we do think they could look at Again, just because the size of the tax relief that's there about 50 billion per year. So it's a very easy target to go, and they've ruled out income tax and corporation tax. Pensions is an obvious area that's left. At the moment. If you make a contribution to a pension, you get tax relief based on the rate of tax you pay. So if you're paying 20% tax and you put money into a pension, you get 20% tax relief. If you're paying 45% tax and put the money into a pension, you get 45% tax relief. That could be changed, it could be reduced, it could be standardized to say a flat rate of 30% or even a maximum limit. We don't know what it will look like, but that's a possible area to go at. Another area which they could do and I suspect they might do is if you are putting into a pension from your company so let's say you're a dental practices owner or even an associate with the company a private pension you put, say, 40 grand in per year at the moment that is a tax write-off with no tax on that, no tax charge. It could be that they change that and say well, no, those pension contributions are subject to national insurance. Whatever you're putting in, they could add it as a benefit in kind or just a national insurance charge on pensions.
David:Now I'm wary to give out any advice on this webinar, but a very obvious thing to think about is if you are going to put money into a pension anyway before the end of March, why not do it before the end of October? Because if they bring out this, if this is brought in from the 30th of October, which is very likely because they want to get the cash in as soon as possible from the 1st of November, it could attract a national insurance charge. It might not, but if you're going to do it anyway, why not make that pension payment before the end of October? That also potentially applies to capital gains. So if you have assets that you're going to sell anyway, maybe you've got a portfolio of shares that you want to. You're going to sell anyway. Maybe you've got a portfolio of shares that you want to. You're thinking of selling before Christmas. The tax you're paying it could be higher if you delay that till after the end of October. So something to think about. With talking to your financial advisor as well. That's something I would be doing.
Dr James:Something to think on, do you you know I had a question lifetime allowance. They've obviously really recently got rid of it. Do you think they could bring it back? Absolutely?
David:they absolutely could do that. Yeah, totally it's. It's one of the areas that they have to get this money, so they absolutely could do that.
Dr James:It would be horrible, but they absolutely could do yeah, because the only I was thinking that must be super juicy for them because of the amount of money this in pensions, and you know there is, uh, there's always a lot of speculation around about the budget time where people, who people? There's people, people are saying, okay, are they going to come after, okay, are they going to come after ISAs, are they going to come after pensions, everything along those lines. I can't remember the exact stats, I need to look these up, but the amount of money in pensions versus ISAs is like literally 50 times as much. So the logic is that if they're going to do something controversial, well, they'll target those. If they're going to do something and they want to make it worth their while and it's going to be controversial, they'll probably prioritise pensions.
David:Yeah, I think there will be something on pensions. It's just too big an area not to go.
Dr James:And it's too juicy. Right now it's like 60k.
Dr James:It's as juicy as it's been for the last 10, 15 years before they brought in the LTA. And yeah, it seems like a low hanging fruit. Let's just say that I agree, there we are Food for thought. But obviously, you know, obviously what we definitely want to move, to just say today is take everything that we're saying with a pinch of salt, because, who knows, even the legislators probably haven't fully figured out what they're going to do yet two weeks out. So when is the? Did you say the 30th of october? That's the day that they're gonna. This is when it's going live.
David:yes, and I think sometimes they bring it out 30th of october and it's effective immediately. Sometimes they announce it to be effective um 5th of april, um 2025. In this case I think it will be immediate effect, especially with things like capital gain stacks, because if you don't, if you say we're going to do it in 5 months time, everybody just rushes to sell those assets anyway. So historically when they've messed with capital gain stacks, they've always done it immediately, with immediate effect. They might phase other things out in that we know the um, the vat on private school fees, is first of january, so they have done some things a bit late, but I think capital gains tax is very likely to be an immediate increase there, we are okay.
Dr James:Anyway, I think I just jumped in there when you were talking, was that? Was there anything more you wanted to add to what we were just saying?
David:Last thing is, I suppose, an additional increase in stamp duty for non-UK residents. We think that's going to go to 3%. Probably not relevant to most listeners, but it's one thing that's probably on the cards.
Dr James:Brilliant, all right. Anything more to add in terms of a synopsis, speculation, pre-budget, or is that a pretty good summary right there?
David:Yeah, I think that's a safe kind of summary. And if you've got assets and it's more than the capital assets, talk to your advisor. Should you be selling them? Should you be holding them? Should you be reinvesting them? I can't give you that advice because it depends on the value of those assets and what will happen in the markets in the time of selling and buying them. But I think you should be asking the questions from your financial advisors.
Dr James:There we go. David, you had a slide there just before we run off, because I want to keep this podcast powerful, punchy and concise. Today you had a slide there at the very start and that slide had all the things that they've said now. Emphasis on the word said that they're not going to touch this budget. So if we could just circle back to that slide, what does that say there?
David:So Rachel Reeves has ruled out any adjustments to income tax, employees' national insurance, vat and corporation tax. That's what they've promised not to touch, but let's see.
Dr James:There we are. And how often in your experience do they backtrack on these sorts of things, or are they pretty good at sticking to their word?
David:In the main they do, because it's politically difficult for them if they go backwards.
Dr James:You burn political capital, don't you? But, yeah, okay, okay, food for thought. Well, David, listen, that's a really nice summary of what we expect to happen, or what we think may happen, over the next few weeks, and it's definitely food for thought for the listeners and I guess. Well, we'll just have to see what happens on the day. But certainly the point of this podcast was to highlight what's going on and empower people to how can we say, be conscious of this stuff and also give them a little bit of an update with regards to what we might expect on the 30th of October.
David:So let's see what happens, shall we, David?
Dr James:thank you so much for your time today and I'm sure that we will see each other again very soon. Thank you, James. Pleasure to see you.
