Financial Planning for Dental Practitioners
Creating a financial plan and better tax efficiencies for you, your family and your practice.
Yellowtail’s Mushtaq Jaigirdar speaks to Sarah Steele about his financial planning work with dental practitioners.
Mushtaq, what led you to focus on clients in the dental profession?
It happened organically. When I joined Yellowtail I worked with a handful of dental clients who were already on board. These were strong relationships and the work we did for them gave them the confidence to refer their peers to us. We also work closely with a number of accountancy firms, handling the financial planning for their dental clients. And it has grown from there.
Why do dental practitioners want to work with you in particular?
Often, it’s because they know we have an in-depth knowledge of the NHS Pension Scheme and how it applies specifically to dentists. But the driver is always financial planning. Empowering the client to make better informed decisions regarding their finances and creating tax efficiencies for the short and longer term.
Can you tell me more about the planning you do with your dental clients?
Yes, I’ve been working with dental clients for over 15 years and in every case, I’ve found there’s scope to add value to their financial plan. We can help at all stages; from starting a practice, to planning a practice sale, right through to post-sale and retirement.
If we’re working with clients who have recently started their practice, they tend to have a lot to think about. Running a new business, taking on staff, possibly looking after their young children, not to mention the actual dental work. It’s hard to put time aside for financial planning but we understand the pressures and fit around our clients.
It’s important to start planning for the longer term as soon as you can. We understand, in the future, there’ll be a practice sale and our planning works towards this but is not solely influenced by it. This is where we look at tax planning and pensions to make sure everything is set up to be as efficient as possible.
How does the future sale of the dental practice affect the cashflow planning?
When we run through the financial plan and do the cashflow modelling I usually set the value of the business to zero. Then we establish what the plan looks like – your long term cashflow and goals for retirement. If there’s a shortfall, we can work out the minimum value the business needs to reach to cover it.
But there’s uncertainty around this. If you have an NHS contract for a number of years and subsequently lose it – and it has happened to a few clients – the value of the business is negatively affected, so these “what if” scenarios are factored into the plan.
That’s why we tend to say; okay, let’s park that to one side for now. Let’s work with the information we have and build a plan which creates tax efficiencies and builds up various pots for the future. As we get closer to the sale of the practice, there is more clarity around the value and at that point we would seek to include the value in the projections.
Can you give me an example of the tax efficiencies?
We’ve taken on clients where the business owner holds everything in their own name. The spouse is often overlooked. We work with both parties to build up the spouse’s pension pots and make use of their allowance too. With Corporation Tax relief there is an almost immediate benefit in terms of reducing the Corporation Tax for the practice while allocating funds to the spouse.
It’s really about how we can use everyone’s personal allowances, pension allowances, capital gains tax exemptions, to create better tax efficiencies on an ongoing basis to help improve the plan.
We’ve talked previously about putting practice properties into pensions. How does this benefit the client?
The conversation tends to start when we’re looking at creating greater tax efficiencies in terms of planning around your property. Usually the property is owned by the individual or individuals. They rent it out to the practice and the practice pays them rent. The business will get corporation tax relief on the rent but when it hits your personal account, it attracts income tax at 40% (or 45%).
If the rent is paid into a pension scheme it won’t attract income tax. The business still gets corporation tax relief but, instead of paying to the individual it pays it to the new owner which is now the pension scheme (whose members are the individuals – the dentist and their spouse) The assets still remain in their ownership, within the pension scheme. And their pension pot grows at a greater rate when compared to the rent being received personally.
Where a dentist has already built up a pension pot, we focus on creating one for their spouse. After time, the pension is in a position to purchase part or whole of the practice premises and the rent can be paid to the pension pot. It’s not something that happens on day one. It’s about recognising the potential, understanding the issues and clarifying the benefits with our client. It’s a relatively involved process so we guide our clients through every step.
How do you help dental practitioners who are at an earlier stage of their career?
Some of our clients come to us in their early to mid-thirties. They may be looking after a young family whilst setting up a new business. At this stage they want to make sure their family is okay if anything were to happen to them. Do they have enough protection, life cover, income protection? The NHS Pension scheme has great family benefits so when you take out your own cover you may end up being over-insured. We might reduce the amount you’re spending on cover or suggest you take out life insurance as a business. As death in service cover, or Relevant Life Cover as it’s known. And it’s all part of creating cashflow for the client and, again, making sure the plan is tax efficient.
And at the other end of the career timeframe, when clients have sold their practice. How can we help them then?
We’ve had five of our clients sell their practice, and out of those five, four of them are still working. They still enjoy the bit they trained for – the dentistry – and like to carry on without the stress of running a business.
But our work is still ongoing. It’s a different dynamic. Usually by this stage we have an ongoing, structured plan, but we have more time to sit down and talk about dreams and goals, things you’d like to do with your financial independence. And by referring to the plan we can help reassure our clients that these goals are achievable. Because when you have spent much of your life earning money, it can be hard to relax enough to spend it. And as with all our plans, as much as we don’t want you to run out of money before you run out of life, neither do you want to reach the end with a pot of money you haven’t spent.
ABOUT YELLOWTAIL
Founded by Dennis Hall, Yellowtail are the trusted financial planners who advise individuals & families across the UK. Yellowtail’s experts provide the clarity, control and confidence to guide you through financial planning, estate planning, pension transfers and investment management directing your journey towards a prosperous retirement and financial peace of mind.