Dental and Medical Financial Services gives some last minute ways you can save on tax.
Saving tax is typically high on the agenda for all dentists and it is only natural to want to keep as much of your hard-earned income as possible.
Tax planning is always best done in advance, enabling you to take maximum advantage of legitimate tax breaks for you, your family and your business.
However, there are a number of last-minute ways to save tax before the year-end. Here are three examples.
1. Top up your ISA
Most dentists choose to pay into an ISA as part of an integrated savings and retirement plan. An ISA offers a flexible way to save and still be able to access your money, if you need it.
Interest income is also tax-free, making this method of saving a highly attractive option to save on tax and make your money work harder for you.
The tax-free ISA limit this year is £15,240, meaning you can invest this much money into your ISA, with zero tax implications.
Tax-free ISA allowances cannot be rolled-forward into future tax years, so once the 5 April 2017 passes then any un-used allowances will be lost.
Investing to the maximum tax-free allowance each year means you accumulate maximum funds into your ISA portfolio, tax efficiently.
2. Pay into a private pension
Paying into a private pension is another way to save tax whilst planning for your future.
Unlike an ISA, paying into a pension means your money is locked away until you reach retirement. Although, with the new pension freedoms, this need not be when you finish work. Now it is possible to access your pension after age 55, if you choose to.
Paying into a private pension means the amount of tax you pay at the basic rate is extended, by the amount of pension contributions within that specific tax year.
The basic rate tax threshold for 16/17 is £32,000. Most dentists will be earning in excess of this and therefore paying 40% tax on income or profits.
Pension contributions are therefore a highly effective way to reduce the amount of income that is taxed at the higher rate.
A financial adviser can calculate the best strategy for you to plan for retirement and save tax simultaneously.
3. Utilise the Annual Investment Allowance
If you own a practice, or have a furnished holiday letting, the Annual Investment Allowance (AIA) is a way for you to purchase new equipment to keep your business in good working order.
From 1 January 2016 the AIA is £200,000, meaning 100% tax relief can be claimed in a tax year, up to this maximum amount.
Previously, capital allowances would be applied but at a rate of typically 25% per year, so your tax relief would be staggered over several tax years.
The AIA is a way for you to ensure your practice renews faulty or dated equipment or furnishings whilst reducing your tax bill.
By making any large purchases before 5 April 2017 you will receive tax relief sooner. Wait until after 5 April 2017 and the tax relief will only be applied to your 17/18 tax return where you will only feel the effects when making your payment in January 2019!
Speak to a specialist financial adviser to help you with last-minute tax saving strategies and to help you start tax planning for next year too.
For more information visit www.dentalandmedical.com.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
