Our five minute read, Tax Tips for UK doctors and dentists will help you save tax, get you organised with your tax affairs and make you feel at ease that everything is taken care of.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
Tax planning is the analysis of your financial situation from a tax perspective. The purpose is to ensure that you continue to operate in the most tax efficient manner. This is particularly important if your earnings are about to increase and placing you in a higher tax band.
As soon as you know this about to happen you should use this valuable time to seek expert advice.
Why tax planning is important
Once your income exceeds £45,000 you move into the higher tax rate and pay 40% income tax, and once your income exceeds £150,000 you move into the additional rate tax band and the income tax rate becomes 45%.
Even if you are a couple of pence over these thresholds you will be pushed into the next level tax bands.
What to consider
One of the most effective routes is to take advantage of the pension allowances. The most that can be paid into a pension and still receive tax relief is £3600 or 100% of your earnings, whichever is the greatest will apply.
As a higher rate tax payer, if you pay £8,000 into a pension you effectively invest £4,800 out of your own pocket and £3,200 is added by HMRC as tax relief.
There is also an annual pension tax free allowance of £40,000. Any contributions over this will not attract income tax relief.
You can also make use of your pension benefit. Once you reach the minimum pension age (currently 55 years) you may be able to take 25% as a tax free lump sum.
Other things to look at are:
- making use of any unused annual pension allowance available to carry forward from the previous three tax years
- making sure you’re getting tax relief at the appropriate rate if you’re a higher or additional rate taxpayer
Dental & Medical Financial Services help you make important decisions on how to minimise your tax.