NHS Pensions May Be Painful For Dentist

Matthew Rhodes
Head of Dental
Capstone Financial

Dentists could face unexpected tax bills and find their pension pot does not provide as much as they believe following Government changes in NHS Pension regulations.

The combination of high incomes, complex business arrangements and ever-changing legislation means dentists need professional financial advice tailored to their unique circumstances now more than ever.

Every budget we have a plethora of changes that impact families in the UK. For those in the medical profession, where they have an NHS Pension the impact is even greater as there are also changes to the NHS Pension Scheme coming up.

Often retirement for dentists also involves selling a business or finding someone to take it on. That involves legal as well as financial considerations and both need to be considered together to ensure a happy retirement.*

There also needs to be consideration for dentists selling shares in a company where there is trapped cash in the company bank account. If that cash is extracted via a dividend, dentists are hit at the dividend tax rate which could be up to 38.1% versus 10% if we can extract that cash via a company share sale and ensure that entrepreneurs’ relief is available. With this and with the pension and exits it’s all about planning.”

In 2006 the government introduced a limit on pension saving called the lifetime allowance. This effectively places a cap on the overall value of pension assets that can be accumulated – and anyone exceeding it pays tax on the excess at 55% when money is taken back as a lump sum, or at 25% on top of Income Tax if money is taken as pension income. These tax charges would apply when benefits are taken.

A cause for immediate concern, are the changes to the annual allowance. The government introduced a cap on how much can be paid into a UK-registered pension scheme each year. The annual allowance for the 2019/20 tax year is £40,000. However, this assumes that an individual has adjusted income below £150,000.

Reform introduced in the 2016/17 tax year means that individuals with an adjusted income above this level have their annual allowance reduced by £1 for every £2 over £150,000. The maximum reduction is £30,000 meaning anyone with income of £210,000 or more will have an annual allowance of only £10,000.

If you would like to speak to me directly regarding your own financial planning needs to help maximise NHS retirement planning opportunities and ensure effective tax planning then please email: [email protected] or call 0161 667 1482.

Exclusive Professional Dentistry Delegate Offer:

Visit our stand C21 to discuss getting a free personalised NHS pension analysis that will assess your future projected benefits and whether it makes sense to opt-in or opt-out of your NHS pension:

  • Understand what your benefits will be worth at retirement
  • Understand your annual allowance and lifetime allowance position and how best to manage any tax charges
  • Ultimately understand whether you should opt-in or opt-out of your NHS Pension


Posted on 30.10.19