Dentists Who Invest Podcast
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Dentists Who Invest Podcast
This Is How The Budget Affects Principal Dentists And Their Pockets with Johnny Minford
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Delve into the financial landscape shaping dental practices with Johnny Minford as he breaks down the latest budget from the Chancellor. This episode offers a critical look at how fiscal policies, particularly those influenced by political motives, may create unforeseen challenges for principal dentists. We examine the economic implications on the profession and the role of bodies like the Office of Budget Responsibility in guiding future strategies, providing a comprehensive view of the financial environment dentists face today.
Johnny explains the nuances of recent national insurance changes and how they uniquely impact dental practices and GPs who often can’t leverage exemptions due to private partnership structures. We discuss alternative ways to address the financial burden these policies place on employers and the importance of strategic financial planning to keep practices sustainable amidst tax changes.
Explore how these adjustments influence dental practice valuations and highlight the importance of pension planning and varied financial strategies for dentists. The conversation touches on potential capital gains tax shifts and how they might create urgency in the market, ultimately affecting practice valuation. This episode underscores the need for knowledgeable financial advisors to support dentists in making informed decisions and securing their financial future in an evolving tax landscape.
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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.
We're here today to talk about the budget, but not just the budget for everybody. Dentists naturally comes with the territory, but not just dentists, specifically principals. We're going to have a fun one and I've got with me today returning face, returning guest, Mr Johnny Minford
Johnny:Hi nice to see everybody again.
Johnny:For those of you who don't know me, I am Johnny Minford. I'm commercial director of DJH. I'm also involved in NASDAQ, the Association of Specialist Providers to Dentists. I'm chairman of that organization.
Johnny:So we're going to talk about what we've received from the Chancellor last week, which was interesting. Some of it wasn't as bad as we thought, but some of it, when you start digging in, is actually very, very frightening, and indeed you don't have to dig into it too much to find some of that. One thing that I will say from the outset the Chancellor was very keen all the way through this to talk about this being about the economics and about being black holes, and about this and that and the other. I think we are going to find out that this is a much more political budget than she talked about, and that will come out with time, because this is all about redistribution and this is all about the the breadth of people's shoulders um and I'm not sure how broad you think your shoulders are, James, but um, most people, I don't know, I've been a little bit Johnny they don't feel that their shoulders are quite as broad as Rachel Reeves thinks.
Dr James:And you know what? Just on that, can I just jump on that for two seconds. Traditionally and this is maybe more a question about someone's knowledge about politics more than anything else Traditionally, if they backtrack and switch it around, how does that look? Could Rachel Reeves feasibly come out tomorrow and be like hey guys, you know that stuff we said was going to happen in April, actually that's not going to happen, or how does that usually look? And I know that we're good, we can get into specifically what those things are in just a moment, but I'm just curious.
Johnny:I'm just curious to seize on this while we're talking about it well, my, my view on this, having spoken to various, uh, various political figures shall we say um over the course of the last few days, the last half a week on that is that there may well be some rowing back on some of what was put out. I don't think there will be a lot of rowing back immediately, but I think there will have to be some undoing, because some of the things that they're talking about, particularly with long-term aspects for dentists and and also doctors, gps are part of this as well. I think that will put a little bit of pressure on, and some of the things that we're talking that we think we might see in, let's say, two years, I think, might suddenly get just dumped or watered down. But it is going to be a couple of years, because one of the things we're looking at is growth and the growth that the government needs. It absolutely needs it.
Johnny:Now we get a lot of growth in this first year, two years, because of all the spend on public sector stuff. But that's like a sugar rush. We get it, we have the sugar rush, that's great. Then it stops. What happens after that and what the chancellor is going to rely on, is people like us businesses. Now, the businesses aren't going to produce anything. This time around, it's all going to be public sector. But two years from now, she's either going to need the businesses to generate the growth, in which case some of the things that she's done have to change, or she's going to have to bang up the taxes again.
Dr James:And that's the bit where the politics starts coming in, so that we will see that we will see, and traditionally again, this is more a question on politics and maybe we don't have the answer at hand on this one today. Traditionally, do they usually wait to the spring mini-budget before they make major shifts, or can it just be as and when?
Johnny:I think they can signal things beforehand. There were a lot of stuff that was signaled before this budget, but not everything um. This coming spring I don't think we're going to see much change, um, in what's what's happening. I think it'll. It'll most likely be the year after where things will start to make a change.
Johnny:Where we're going to start seeing the pressure coming from is from the other people in the marketplace the Office of Budget Responsibility, the OBR, the Institute of Fiscal Studies. They're already coming out and saying this doesn't quite hold water long term, um, and in fact one person has just come, or one body has just come out and said that this is uh, you know, we're going to get into credit in, I think, 2070 or something like that. If it just if we just ran things on the way they were supposed to go. So I think it's those other august bodies like the OBR and so on will start to maybe focus the attention. And I think the government needs the time to make the changes. It can't just change because then it'll say we were wrong. Now I've never seen a politician that says that they were wrong. So they need the time for events to enable them to say we was wrong. We're going to change this.
Dr James:Well, isn't that kind of what happened with Liz Truss? She backtracked too fast and it kind of undermined her.
Johnny:There's a little bit of it did and there are elements, I think of Liz Truss in this kind of undermined her. There's a little bit it it did and there are elements I think in of liz's trust in this, but not in the same, not to the same level at all, not to the same level. And we look at the markets. You know the, the, the, the cost of government borrowing went up, but it only went up a bit. So so basically the markets have swallowed this. And if the markets have swallowed it, then we're on a road and we're heading down that road. And that's the difference with Liz Trust. The markets didn't swallow it, they weren't buying it, they did swallow it very quickly.
Dr James:They weren't buying it, but, yes, okay, cool Setting the scene is what we've just done. We talked about the road, the journey, the road, the journey, so to speak, and we're on that road, and I guess the next place to go is to just reaffirm what is that road and what does it look like for dental practice owners? So first thing springs to mind what is the immediate effect of the budget on practices? Out of all the things, out of all the things that they switched around and change, what have the biggest implications for dental practice in the here and now?
Johnny:um, it splits into two bits. The one bit is what it's done for the capital of a dental practice and we'll maybe throw that off to the last third of what we talk about here. We need to look at first of all what happens now, what happens to the profitability of the debt practice now, and then, of course, what that does to the confidence. The big issue that we've got that everybody has seen is about the national insurance increases. There's one thing that people maybe haven't seen quite so much. They talk about the 1.2 percent of employers national insurance increase. That doesn't sound very much, but if you look at the reduction in the threshold to 5 000, which is about about half of what it was, it means there's a lot more people paying or eligible to pay that national insurance or for their employers to pay that national insurance than was in the past.
Johnny:Now, where that is going to affect practices, um, is that if you've got a lot of part-time staff or lower mid-range paid staff that are earning, let's say, £10,000 a year part-time, we wouldn't have paid national insurance in the past as an employer. Now we are. And if you get a lot of places in rural areas and so on where you are relying on a lot of part-time staff and also let's bear in mind the national minimum wage and the apprentices, all of them walloping up of the costs of that. Apprentices all of them walloping up of the costs of that. A lot of practices actually rely on apprenticeships to do their training or to bring people in at a lower level again, not in the metro areas, but outside the metro areas, where wages are maybe a little bit lower and they are bringing trainee nurses in, trainee general staff into the thing with are all going to be hit by this national insurance change or they're not going to be hit. Their employer is going to be hit by this national insurance change.
Johnny:And if we look at one of the big, big issues that we have in dental practices at the moment, it's staffing and all this is going to do is, I think, depress practices wanting willing to hire. Now the worry about all of this is, in the fullness of time, this will all settle itself up, but it'll settle itself out in higher charges to the patients, unless you're an NHS dental practice and of course you can't do that because you have a fixed tariff. So we've got something the crazy situation. We've got something going on here where we're going to wallop the employer, but actually NHS dentistry is going to suffer a lot more than private dentistry and and and employees in the long term in NHS practices are going to suffer more because there's nowhere else to go.
Johnny:Now I'm sure that's not what the Department of Health thought they were doing, but you know what. That's what they've got, that's what they've done. So we are very interested in seeing what the suggestions are, for contract changes might be over the course of the next few months into 2025. I know there are some changes going on and it'll be interesting to see how that develops, because if the Department of Health doesn't reflect the increased costs of NHS practices in a better looking contract, nhs practices in a better looking contract, the whole idea of what they're providing for the NHS, nhs dentistry sounds very very hollow to me.
Dr James:Sounds tough Cause. Yeah, no scope to move around prices. Udi rate is the UDI rate, unless you renegotiate.
Johnny:Exactly. Can I make it a bit tougher?
Dr James:if I had a choice, I'd probably say no thanks on behalf of my brothers and sisters who are dentists, but I'm not sure I do. But yes, anyway, we're all ears.
Johnny:I want to tell you what's going to make it tougher. And again, this is a level which isn't coming out anywhere, but we're looking at it from for people, for the people with practices that we look after. And this is an issue of a practice goes as goes as a salary role payroll. You can add a little percentage on to that and I think the government's or the obr people have said that it's going to be, on average, about 800 pounds per employee extra cost. That is assuming you're an average employee and that's not counting the people who are a lot more part-time rather than full-time. 20% of the practice of the gross being paid on payroll is fine, but you think about your other suppliers, because they're all going to be in the same position.
Dr James:Oh, man didn't even think about that, that's true.
Johnny:They're all in the same position. Oh man, didn't even think about that. That's true. They're all in the same position. And if you've got another 50 percent of your uh of your practice expenses, there are other suppliers software providers, materials suppliers, labs. They're all going to be banging their prices up too. So it's not just that little bit that we get to pay on the practice payroll, it's everybody else's practice payroll which is going to come through as well. Now, that is a much deeper squeeze on dental practices than just a little bit on their own national insurance. That worries me a lot, and I'm not totally convinced that the Department of Health and the Treasury have sort of worked that one out yet, but it's interesting, it's interesting well we'll just let everybody will everybody ruminate in that one, shall we, unless there's more to add well, I am going to say we're not about nhs practices as well.
Johnny:Um rachel reeds has gone and said you know you're all doubling the employer allowance so there's an amount of the an employer, if you're within certain boundaries, can get off their pay, their nic charge. So that is what they pay every year on on pay to the government. So they're doubling the allowance so you can get more back Again. Sounds great. What she hasn't said is that NHS practices can't claim it, only private practices can claim it. You're joking.
Johnny:If you wanted to put the knife into NHS practices, she's done it. Now, is this going to change? You asked me before is this something that they're going to roll back on? This is one of those things that they have to look at. On doing it, the GPs are up in arms about what they can. Because they're not part of what they can. Because they're not part of what they can be exempt from the national insurance changes because they are private partnerships, not a hospital trust or something like that. Dentists are in the same boat and there's still a lot of practices which are 90% NHS and you've got to look more where we're going with this guys well, it's good to know that at least the GPs are in the same boat.
Dr James:So there's more. How can I say? And that's not from the point of view that we want everybody to share our misfortune. It's more from the point of view that we want everybody to share a misfortune, it's more from the point of view that, well, there'll be more voices piping up about this.
Johnny:Absolutely. I think you're absolutely right, James, and I think people like GPs, they want to see GPs having their people, and if we need to hook ourselves on the back of that, then I think that's what we have to do.
Dr James:There we are. That's what we have to do. There we are. So, employers and national insurance we've done that, and we've done it in depth as well with regards to ramifications and you know what. This is all with the aim of adding to the public purse to improve public services. Got that right? Yes, any alternatives of adding to the public purse to improve public services. Got that right? Yes, any alternatives. Because, is what? Do you think they went too firm, too hard on employers, national insurance, or do you think there was any other ways that they could have went about that? This is just more question for you personally yeah, I think.
Johnny:I think there are different ways they could have gone about it, and this is where we come back to the politics here as well. They painted themselves into a corner about not putting up income tax and so on, but the reality is there's a lot of sneaky ways that you can put up income tax without putting the rate on it.
Johnny:Successive governments have done it for years on that, but what they chose to do was not go down any of those more sneaky ways, but actually put up the one rate that hits business only. It doesn't hit pensioners. It doesn't hit people with savings. It doesn't hit people with rental. It doesn't hit people with rental properties. None of these people are hit.
Johnny:Only businesses who employ people are hit, and I think that is something that I think might have been thought through a little bit more.
Johnny:So you were spreading that across. You can have people that earn 100,000 a year in income or in shared dividends, not touched by any of that, but you've got a single-handed dental practice, you know, making 50,000, 60,000 a year. It's hit very hard. There's something wrong here that wasn't thought through. So that's what I think we could have done a little bit more. It would also have given her more wiggle room, in my view, to change things into the future, whereas if she was going to change things in the next year or so to actually roll back from the National Insurance, change would be difficult. What she'd have to do is actually bring in more tax on other types of income, so we wouldn't be changing the burden of where the where the burden is falling, we're more likely to be adding to the burden somewhere else, because I think, moving these allowances around and the percentages around, I can't see how you can roll back from that and still keep face well, there we are.
Dr James:food for thought on that one We've all seen. Well, the logic here is that they want the economy to grow. Do you feel like this strategy that they propose is a viable way to do that?
Johnny:If I look at what the OBR, the Office of Budget Responsibility, is saying, they're not saying that. They're saying that we will get some growth just now, next year, two years. Even with Rachel Reeves' projections, the growth isn't projected to carry on at any sort of high rate after two years. So that's where we're into thinking, ok, where's the next step of growth going to come from? Because at the moment it's coming from public sector spend. It's not coming from business growth. The OBR are actually saying that the number of employees, the number of people that are employment in the UK with this budget, is likely to fall over the next two years. Given that it's the people in employment who do the spending and grow the economy, then that doesn't look as though we're going the right way from that perspective. So I don't think there is going to be a growth without some other change after two years. Growth without some other change after two years. The other thing I would put in mind that, from an economics point of view, the amount of headroom that she has within the budget, so within the overall economy, is actually relatively small compared to the size of the economy. All you need is something relatively minor that bangs up interest rates or makes a jolt to the UK economy and the idea of the growth starts to evaporate. So we're actually quite close to the edge being where she is with the projections, so that's a little bit worrying from that perspective.
Johnny:I think we're also seeing it in the interest rate markets. The interest rates were scheduled to fall. Everybody thought they were going to fall this week anyway, with the Bank of England's Monetary Policy Committee, so they thought they were going to fall. That's going to happen, probably, so they will fall. Will they fall further, as people had expected? We'll wait to see, but there are some people who think they're not going to fall as quickly or as permanently into early 2025 as we thought. That has an effect on practices, because many practices have got borrowings and there's interest rate on that, so interest rates will probably slack for business borrowings. Mortgages, I think is not the same thing at all, and I have noticed that over the weekend some of the mortgage lenders actually hardened their rates and some of them have actually increased their fixed rates to mortgage borrowers and so on. That also has an effect clearly on everybody in the economy, which includes dentists and their employees, so I don't know where that's going to leave us.
Dr James:Yeah, well, I mean, we're tasked with the impossible here predicting interest rates, aren't we? It's always fun to speculate, isn't it? And it's I mean tax. If you increase tax, then there's less free-floating money in the economy. Yeah, so if you talk about supply and demand, if there's less free-floating money, demand goes down, then actually that is something that would encourage them to lower interest rates. Just purely off that. Purely off that. Obviously there's a billion factors to it, do you know what I mean? But it's fun to think like that. It's, it's, it's a way, it's a way of looking at it.
Dr James:And, as you're, as you say, mortgage rates are something slightly different. They're how the mortgage brokers make money, which are kind of loosely based to interest rates. I literally just shot a podcast earlier and we were talking about, um, first-time buyers. Uh, I know we're not wildly off times in here, but it's, it's a fair bit more lucrative to think about purchasing a property as a first-time buyer. Not just as a first-time buyer, but also as somebody who is purchasing another home, a residential property, uh, to think about that before april at present.
Johnny:So that's another, that's kind of another way of looking at it, another perspective I think you're absolutely right there, James, and I think you've hit on something um, very, very pertinent there, because although the staff duties have gone up for second properties and it's now quite eye-watering, the idea of holding a property in your own name and investing it in your own name is probably not becoming less sensible.
Johnny:So I think moving property if you're investing and moving property into a company, or buying property in a company name, is probably now more sensible going forward, just because of the things you can offset against the income that is coming in. And we know that many dentists, if they have a limited company and they've created surplus, they're using that surplus to invest, but possibly not through the dental practice company, but through some sort of an investment company alongside, which may be in property and maybe in shares. And frankly, there's there's nothing that you can that you can do in a limited company that you can't do as an individual, or vice versa, apart from premium bonds. Apart from premium bonds. But apart from that, if you've got money and it's in a company, you can invest it exactly the same way. I think you know this.
Dr James:Premium bonds are very useful in the right instance, yeah, where you can switch around. I don't want to name drop, but there is, the company's name is escaping me. There's a company out there and you basically basically say you have money in a limited company, you can just set up an account in a limited company. What they'll do is they'll go through all the uh cash products that are out there with no fixed terms, and they'll find you the best rates. I I even if the name did come to me, I definitely don't want to drop it on this podcast. But you're right, premium bonds only in your personal name is a little factoid, just there. Uh, let's switch gears, shall we? Let's go from talking about one tangible asset to another tangible asset, which is, which is even more relevant to dentists, and that's dental praxis, so let's talk about their evaluations as well. So how do you foresee all of this affecting the valuations of dental praxis over the next months, weeks, years?
Johnny:I think it's going to become very interesting and I think it might be very, very bumpy for some. On that, there are a number of factors that are going on here. We talked about the profitability of dental practices because of the increase in additional costs that are coming through. Increase in additional costs that are coming through. That affects the EBITDA, the profit that is used within the multiple to value the depth of practice.
Dr James:Naturally yeah Of course it does.
Johnny:The multiples themselves might be a little bit more edgy as well, because I'm not sure that the confidence will remain for people buying a dental practice. We'll talk about capital gains tax in a moment, but basically the tone of the government is saying if you invest in a practice, then in days gone by you put your money in, you put your house on the line, you try to grow that business and you benefit by having a relatively low rate of capital gains tax when you sell it. That's no longer the case. So what I think is being said is that when you come to sell your business, it's not being recognised in the same way Of the work and the effort and the sleepless nights and the three o'clock in the morning worries that anybody has a practice will recognise. That's not taken into consideration. And the way the government's talking sorry, I'm just digressing here slightly the way they're talking at the moment is this almost capital gains. You make a profit on something you've created. It's a dirty word, you're not allowed to do that. And the government is saying Rachel Reeds is saying that oh, you know, we're fixing this anomaly. What anomaly. People have put their house on the line and created something. Where is this anomaly?
Johnny:And I think that is going to hit the sales market because there'll be less people sort of thinking I'm not going to do this anymore, I'm not going to buy because there isn't enough for me.
Johnny:The other thing that will, I think, affect this is the fact that interest rate, capital gains rates, are going up at in steps and those steps have a hard edge and when you put a hard edge on something in any sort of tax thing, you get people running very hard to beat the hard edge one way or the other.
Johnny:So people are going to sell their practice buy for the vehicle, say, coming. There's going to be a lot of effort into that and, of course, where you've got a seller who's desperate, you've got a buyer who wants to get a bargain. So that affects the marketplace and I think we're going to start seeing some seasonal changes in here over the next two or three years as people are looking for quick sales or sales at certain levels, and I can also see the sales processes being a bit more convoluted. So it's not here's my practice, I'll have this money. Thank you very much. I think these things may well spread out over a period of time as the deals are done but can't be done within a particular period of time, within the period of time that's necessary. I don't think that's healthy for the marketplace.
Dr James:Personally, Right, I see what you mean, because people will be racing to get them done for certain times.
Johnny:Yeah.
Dr James:Right, okay.
Johnny:Yeah, and there's always going to be people who want a bargain. There's nothing at all wrong with that. This has set themselves up in order to do that. I think we've created a particular shape for market that maybe didn't need to be created, so there are things going to be driving this that aren't related to the value of a practice well, I just can't see it being good news for dental practice valuations, unless I'm missing something, and this is where is it, unless there's a counter argument to that.
Dr James:But it's like you've got squeezed margins, which is basically what the tax side of things does, and then you've got a deluge of more of praxis racing to the market because people are like right, that exit that I've been on and on about, it makes sense it's now yeah yeah, yeah, unless I'm missing something no, I mean, James, I'm absolutely with.
Johnny:I think you've hit the nail on the head. I think you've hit the nail on the head, unfortunately, but I think that's about where we are and there's always going to be little local things that are going on. That's always the case. Things that are going on, that's always the case. But I think if people need to sell, you're going to have that in the position. You've got someone now who is in a position that they want to sell now and they want to put it on the market now. They've got nowhere to go. If they have to do the sell, if they're at a certain age, or if they've got nowhere to go if they have to do the cell, if they're at a certain age or if they've got an ill health position, you're going to be stuck with something. I think a lot of other people, let's say, in their mid, late 50s, early 60s, they may well say you know what? I'm just going to sit this out for another five years and, you know, maybe there'll be a change there we are something to chew on, is that?
Dr James:excuse me, but yes, anyway, back to what we were saying um, okay, cool, no, I can. I can completely see where you're coming from. I guess the one. Actually, there's one thing that I just wanted to throw in there, and what I was saying if you've got a good, maybe now is the time, if someone has a big bit of cash on the side, right, well they're. They're the one people who are probably getting excited to run, but no, but that's probably the minority, really, because this is when the opportunities come right and everybody's selling I think.
Johnny:I think this is true, but, um, I think, moving at oh and you, you could buy another dental practice practice or you could invest in other things like property, and so I also think that there's potentially a property investment push as well, because, with the increases in stamp duty and also the increases in the tax let's be honest about it from the government's point of view They've done the figures and they've thought people don't like landlords. This is a politically easy hit to have a go at landlords and what they call the working man, whatever that definition turns out to be, um, doesn't, doesn't, isn't, bothered. I don't think they've realized how much else there is in the marketplace that lots of people have, um, I want to say multiple properties, one or two properties or three properties, because their parents have left them a property or something. You don't need to be a hands-on mega investor to look at this type of thing. So I think those property prices are going to fall for supply and demand, as you've said.
Dr James:Here's one thing I wanted to ask you on, and this is actually something that I've read, but I could probably do a little bit more clarity on myself and you'll have no, no doubt, done your research pensions, contributions to your pensions, but then also and I read inheritance tax on pensions. That's all I know about it. I know it's happening. I have no idea how it looks, so I'm listening, just like everybody else is on this podcast, as to how that looks. I'm sure you will no doubt be very learned and have a very good understanding of what's happened on that front.
Johnny:James, I wish I knew what the future have they not clarified.
Dr James:No, no, no, I know what the future have they not?
Johnny:clarified. No, no, no, I know what's happened.
Dr James:Oh right.
Johnny:What has been announced on pensions is not what we expected. In a way, what we expected was that they would put national insurance employers' national insurance onto pensions. So if you had a company and you said I'm going to put 10,000 into my pension this year, then that 10,000 would suddenly become 13,000 because you've got the extra bit of the national insurance for now Not 13,000, sorry, got my maths wrong there, but with the national insurance on it, we were expecting that that's possibly something that may be down the track a bit, we will see. What we didn't expect was to have the pensions regime particularly which has been built by many people on their pension funds in such a way that they can take the pension. But if they didn't take all the pension, it wasn't all spent by the time they popped the clogs. That value would then push to the next generation, so somebody else who was joined in the pension scheme maybe their children could then take advantage of that pension going forward and that didn't form part of their estate or inheritance tax.
Dr James:Can I just jump in on that, If I've got this right, wasn't there some sort of rule on that that it differs if they're over 75 or under 75? Have I got that?
Johnny:right, there is, there is. There is If it's over 75 or if you've started taking the pension. Now, the other thing I'm going to throw into this and this adds to the complexity Rachel Reeves has talked about three big bangs that are coming down the track. Big bangs that are coming down the track. One is the industrial strategy and one is welfare and how she's going to approach welfare and deal with that. The third one is reform of the pensions regime. So that's the reason why I said I wish I knew what was going to be happening on that one, because what we've seen in the budget, I think, is something which will change. But when she has this big bang which is a reform of the pensions regime, I think we start to see some of these changes coming through. Could this um thing be reversed? On the of the inheritance tax, I think she's taken the hip for it and if you've taken your beating, why would you reverse?
Dr James:it okay yeah, she's been through the worst of it now.
Johnny:Yeah, that's, you're not wrong so that's, that's, that's, um, that's that's about where we are, but that does have an effect because there's an awful lot of dentists private dentists mainly who have invested in pensions, invested in SASs and SIPs, and actually have done this sort of thing which will provide for their own retirement, so they're not reliant on the state. But also, if they don't spend it, then it can move to the next generation. So now we've got an awful lot of people here who they need, they need to take their, their, their, their vitamin supplements, because they're going to need to live till they're 150 to actually use up all their pensions maybe not a good time to take off smoking.
Dr James:No, I'm kidding. No, don't do that. Don't do that.
Johnny:That's a joke so, um, but that that is a big, that is a big, big issue. Um, there was some I've had some discussions with people that said, look, we might be able to get some sort of a line in the sand here the way we did, let's say, with NHS pensions or with other pensions with a lifetime allowance. So if you were over the limit at a certain time you could protect your pension. So even though you're over the threshold, you wouldn't be caught by tax changes coming in in the future. And there is some thought you could something like that be brought into play with this iht thing.
Johnny:Um, I have to. I have to say I, I, I, I can't see, I can't see it, I can't see how it would work. And I think it's much easier for the Chancellor to go back and say, actually, you putting the money into the pension was under the rules at that point. But what she's dealing with is inheritance tax and that trigger point is when you die. Die is not when you put the money in. So I can't see how she could go back and protect some of those pensions from iht. The complications would be enormous. Just, you just couldn't do it.
Dr James:You know it was interesting, right, because I was replying to something on facebook the other day. It was like a comment and I was talking about pensions, and pensions are great for a lot of people. I'm definitely not diminishing them, you know, but to to a degree there, your money is almost hostage, slightly, to the government for things like this, you know. And uh, that's not to say they don't make sense. You know, I want everybody to not take my words for it, you know like I'm bashing it or anything along those lines. It's just worth remembering that this is the other side of the coin, right? And then I was writing something and I wrote, yeah, pensions are great, but then, you know, there's always they have the propensity to be rated, like when they potentially bring back the LTA. And then I was thinking about this whole IHT thing and I was like it kind of is like they're bringing that back in a weird way. You know what I mean.
Johnny:I was like they kind of have because it's another way to tax people who have deposited to them significantly. Yeah, I would agree with you, and there's some of the things that you might be able to suggest because you have that knowledge and so on. It may well be that we move back towards taking your advice rather than pensioners' guys or tax advice on it, because the pensions advice thing for people with reasonable-sized pension pots no longer works. So I would agree.
Dr James:And this is another thing as well, because if we go back, if we, if we do a little bit of a history lesson on the, when they brought in the lta and they brought it in, it was initially two million or something in like 2011, something along those lines, and there was a little bit if anybody had a pot of like two or three million, right, or like if they had like a pot over two million is what I'm saying. There was some sort of minute. They took some steps to mitigate that fact if you already had it in there but they definitely weren't comprehensive. Like those people still got stung over certain amounts. It wasn't like hey, do you know what, guys? Uh, if anybody's over two million, that's fine, we'll just chalk that one off. Was some? There was some measures that they put in place to slightly mitigate it, but you still got stung, right. And then they brought it down.
Dr James:It didn't even go up, it went down yeah.
Johnny:Yeah, yeah, it is. I think there's going to be some changes from that. So so what sort of stuff would you do, James? I mean, if you had a, if you had a dentist with a? Um, with you know? Maybe a hundred thousand pounds extra surplus and they built up in their practice. I mean, we would normally look at this and some sort of an optical prop code type of arrangement, but not necessarily prop. It might be. It might be something else I think the biggest listen.
Dr James:This is a great question, right, and what I'll start with? What I slightly annoys me before I tell you what I'll do? Right. Here's the thing that in my world, in my opinion, the re, the areas where the advice world falls down, the traditional financial advice world. Because what are they going to tell you to do? Right, you've got 100k in your limited company and they'll be like, oh right, brilliant, max out your iso, max out your pension, okay, excellent, right, like that's like they don't get remunerated from telling you to have a property or another business or something along those lines. Right, and it's not to say that that isn't good logic. But what it is to say is that if we just default to this wisdom, this hand-me-down knowledge that the pension is the very best thing, then actually, whenever someone like rachel reeves just shifts around uh taxes, as she has done recently, you can get stung badly, right, and I'm not saying we shouldn't do that, I'm just saying that if we follow that default advice, then we have very little scope or limit to protect ourselves against that.
Dr James:Does that make sense? Yes, and listen, I don't get me wrong, I am. This is actually a big reason why I started Dennis Invest right, because it's kind of like you get this spoon-fed knowledge. That's not even necessarily the most appropriate thing. And what we have to remember and I'm not bashing financial advisors In fact I think they're great and they really have a fantastic place to be able to help people you have to remember they get remunerated from you maxing out your contributions to your pension and your ISA. It's literally not in there and they're not incentivized in any way to ever talk about property or to talk about a business which might actually be the best thing for the individual in front of them. So listen, let me pause here for two seconds. Does that make sense what I've said?
Johnny:Yeah, it absolutely does. You've got to look at a wider range.
Dr James:Wider range of what you do and it's a lifestyle thing, isn't it? It is right. And listen, I almost fell in the reason why I kind of speak a little bit. How can I say this? Like you can probably feel a bit of energy coming through right now. It's because that almost happened to me and I was like but that wasn't the best thing for me. I want to have businesses. I love that, like I literally love doing that. You know, or no one's ever going to have. I know I'm not everybody's a fan of crypto. No one's ever going to have a bitcoin portfolio if you fully listen to your financial advisor. Whether you agree with that or not is another thing. Uh, but yeah, anyway, some food for thought.
Dr James:I have a podcast on this. There's actually four. I think it starts with understanding that your goals like that's the biggest thing, yeah, yeah, yeah. It all comes back to that and I know that when people throw that around a little bit, it maybe gets a bit like every fairy like, oh, what's my goals? I gotta figure those out where. What does 10 years from now look like? What is your dream retirement stuff, like that? And it's like, yeah, okay, we say that and maybe it gets.
Dr James:Maybe we don't take it seriously when people uh project or when people talk about those things in that fashion, but it is actually really important because you gotta, you gotta think to yourself right, okay, what do I actually want this to look like? And then it's only really at that stage that you can say what the best asset is for you. And then, when you figure out what asset you need, then you can get into okay, how do I structure it? How much do I put in there, everything along those lines. But that might be a financial planner question, and that's one instance where a good ifa or financial planner can add loads of value when they're not, when they're not trying to shoehorn you into certain investment categories or in certain assets.
Dr James:You know what I mean and, like I say, I really, really hope that anybody listening to this podcast did not think I got the wrong impression every day that I don't think that there's a lot of value to add on that front from those professionals. There certainly is, but we just got to remember the flip side, which is all the things that I was saying earlier. Long story short the more you know and the better you know your goals, the better a decision you can make and that that's a huge reason why I run Denison Invest. You know what, if anybody's actually interested in that, you might want to listen to? Episode 300 of the Denison Invest podcast talks about the four different types of assets and their characteristics, so you can help decide which one is actually going to help you achieve that goal in a timely fashion.
Johnny:And I think it's absolutely right, James, and this is the time to be talking about these sorts of things, because we've had some changes in the budget and they've been quite shocking to a lot of people, and there are some things that you have to just swallow and you have to deal with, but there are other things that you don't have to have a knee-jerk reaction, because some of these things are going to happen over a period of time. You know, it may only be six months, it might be 18 months, but knee-jerk isn't always a good thing and you need the time to sit down and talk. Talk to someone like you and actually say what are we planning to do here? So we're talking about a property company or an investment company somewhere else. It's all about the long term, and if you're 35 years old, you've got a different sort of long term than somebody who's 55 years old. So all of those things just need to be thought through.
Johnny:And whilst I'm saying there's a lot of things going on here in the budget, a lot of things will flow their way out, because dentists will work stuff out and will change accordingly, but if there's anybody saying, do you have to do this and you have to do it right now. I don't know, I'm not sure you do take good advice and if someone like yourself who's considered and you look at the broader spectrum and so on, and with the financial advisors, as as you've said and I know, I know that you work with financial advisors so I mean nobody's going to hear what you've said and think, oh no, it's, it's. It's not about financial advice, it is absolutely, but it's about that person and that person's personal goals, individual objectives in their lives and their family's life yeah, and yeah, absolutely.
Dr James:As you say, professionals definitely have a huge part to play in that. Knowledgeable professionals, once you're really good at what they do and preferably know dentistry as well, because we are dentists and that can look like accountants like yourself, financial advisors, financial planners good ones, anyway, Johnny. One more thing I wanted to ask Obviously, we talked earlier about how things are going and we feel like the Chancellor is going to have to roll back a little bit on that, as we were saying just a second ago Any predictions on that front? I know this is very hard to do, specific things.
Johnny:Predictions. Well, I think something has to happen with the NHS contract, because the NHS practices have been hit by this budget in a way that I don't think Rachel Reeves intended and the dots weren't joined up. So I think there will have to be something in there to balance that out. There are things going ahead with the new chief dental officer, who's pushing things to try and get oral health more onto the agenda, which in itself will help NHS dentistry as well as dentistry in general. So I think in some ways we're in a good place in that, because we've been hit and now we're sort of saying actually, what are we going to get in return? So that's going to be quite interesting how that negotiation goes. So that is one thing. The other thing that I think might get rolled back is the capital gains tax on the sale of business.
Johnny:I've been in record over the years of saying we've always had some sort of an entrepreneur relief for people creating a business and selling it. There's not somebody investing in a painting that suddenly goes up in value. We're not talking about that. We're talking about, as I've said before, people putting a house on the line and borrowing money and creating something which has gone up in value through their hard work and sweat. Now, over the years, there's always been some sort of a 10% rate. We had the business asset disposal relief. Before that we had entrepreneurs relief, and then we go back. We had taper relief, then we had retirement relief, and you're going back back.
Johnny:As far as you can remember, there's always been something. When a new government comes in, they change their name, they slightly tweak the rules, but there's always something that's always been there. This is the first time we haven't had that. That's being done away with. I think that that is something that might it wouldn't be rolled back, but, shall we say, it might be clarified, which is another way of putting. We've messed this up. We need to do this Because otherwise, why would you ever start a business if you're going to be ending up paying tax at a similar sort of rate as if you just went and worked for somebody? You just wouldn't do it. And the government absolutely need those business startups, not just in dentistry, but they need those business startups to generate the growth once this initial spend runs its course.
