Dentists Who Invest Podcast

How To Efficiently Extract Wealth From Your Limited Company with David Hossein [CPD Available]

• Dr. James Martin • Season 3 • Episode 396

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Unlocking the financial potential of your dental limited company requires strategic thinking beyond basic salary and dividend planning. In this comprehensive exploration of wealth extraction strategies, specialist dental accountant David Hossein and I delve into the challenge many dentists face: substantial cash reserves effectively "stranded" in their companies due to tax considerations.

The podcast begins by examining the fundamental tax benefits of operating through a limited company – the ability to control income extraction and thereby manage personal tax exposure. This advantage, available to dentists since 2006, creates the common situation where cash accumulates within the company structure. Rather than seeing this as a problem, we reframe it as an opportunity for strategic financial planning.

For associates, we discuss the critical threshold of £100,000 personal income that preserves your tax-free personal allowance, alongside comprehensive business expense planning. Many dentists miss legitimate claims for items like protective clothing, business travel, mobile phones, and CPD courses (even those in exotic locations, with important caveats!). We examine how family involvement through employment or shareholding can distribute income more efficiently, and explore the tax benefits of company-provided assets like electric vehicles and bicycles.

Property investment emerges as a major wealth-building strategy, with corporate structures offering significant advantages over personal ownership – particularly regarding mortgage interest relief. David explains the ideal setup using separate special purpose vehicles, inter-company loans, and even introduces the powerful concept of "growth shares" that can pass future value appreciation to children without inheritance tax implications.

For practice owners contemplating sale, we outline the vital tax considerations around Business Asset Disposal Relief (with rates increasing from 14% to 18% in April 2024) and the zero-rate Substantial Shareholding Exemption for reinvestment scenarios. The discussion includes practical advice on holding company structures and timing considerations for maximum tax efficiency.

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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. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

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Dr James:

Lots of dentists have money in their limited company which is effectively stranded there because of tax, and when I say stranded, what I mean is we can get it, but it's just going to cost us a lot to be able to extract it into our own personal name, and that's why today's podcast is hosted by myself and also Mr David Hossein, specialist accountant to dentists. We're going to be discussing all of the methods that are out there that can be used to extract wealth from your limited company, both the common knowledge methods and also the lesser known ones that exist out there that are well worth hearing. This stuff is what we need to know to be able to make the most of that money that is trapped in there. I'm also happy to share that there is free verifiable CPD associated with this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentistry Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle.

Dr James:

Everybody, welcome to this webinar. This evening we're talking tax efficiency and how to efficiently extract your money from your limited company, because, well, it's quite often the case that we know that it's almost like held hostage in there in a way because of tax. So anything that's going to be able to help us be able to extract more of that into our own name is going to be a good thing, and that's why I'm joined today by Mr David Hossein, expert accountant to dentists. David, I'm looking forward to this one. Where should we start?

David:

hi, James, yep, uh, so I'm excited to be here. Um, so we can, we can jump in. I suppose I've got the slides ready let's do that.

Dr James:

Let's do that bit of housekeeping just before we do that. Tonight is going to be about an hour ish in length, about 60 minutes. If anybody has any questions, please feel free to pop them in the chat and we will get to them at the end whenever we come to the q a section, which is going to be about 35 40 minutes in. So then, what that means is it's a first come, first serve basis. Basically, the first questions we see in the chat, we're going to answer as many as we can up until that hour mark that we talked about just a second ago. So, yeah, if everyone's happy, as you said, David, now is the time we can get we can jump straight in, right.

David:

Yeah, let's get started so do you want me to share the screen?

Dr James:

yeah, let's do it. Let's do it. You should have permissions, I believe.

David:

Okay, so a bit of uh it knowledge. Now let's see if I can figure this out it's all right.

Dr James:

Uh, zoom right at the bottom. See the button that says share yeah, I've got three.

David:

I've got three screens. It's just figuring out the right one, gotcha. So let's try again. How's that? Can you see how to extract wealth from your limited company?

Dr James:

we certainly can.

David:

We're looking good so if you're here, you obviously have a limited company. The question then becomes how are we extracting things in a tax efficient way? Now second slide there. Can I just check and see that it's moved for you.

Dr James:

It hasn't quite yet, David. Actually I've got the wrong screen.

David:

That's all right, let me study it.

Dr James:

No, it's all right, it's all right.

David:

So I'll start again. Stop share, sure, right, let's start again. Uh, stop share, sure? That's the problem with multiple screens? Okay, so let's try again. Um, how about that? Does it say overview? Yeah, no, we're cooking. Yeah, in the right place, good, all right. So, um, it's not that long ago, so it's only 2006, since dentists were actually allowed to have a limited company. There were concerns about limited liability and so on and whether it's appropriate for healthcare professionals to have it and how that opens the doors to corporate ownership. But we are able to trade as dentists as a limited company.

David:

Obvious tax benefit is that it allows you to control the level of income tax you pay on your earnings. So your earnings can be at a certain level, but you control what income tax you pay based on what you draw out of the company. That that's a starting point. A bit of a quirk with this is that if you are a dental associate in the nhs, you can have a company but you can't superannuate, which is different for principals, who can, and they can have a company but you can't superannuate, which is different for principals, who can, and they can have a company and still superannuate insofar as they have a salary and dividends, whereas associates are unfortunately not allowed. So I don't make that rule, but it is important to say so if anybody listening to thinking about going with a company. You have to know if you're an nhs dentist, you can't have the superannuation going forward. You have to know if you're an NHS dentist, you can't have the superannuation going forward. So hopefully that's clear to everybody.

David:

Next slide, so wealth extraction. So a big part of extracting wealth will be minimizing the tax that you pay, because the less that goes to HMRC, the more is available for yourself. So using a limited company, whether as an associate or principal, will ultimately accrue a significant amount of cash inside the company, right, because that's the whole purpose of the company. You're going to control what you take out. Therefore, the company will be left with cash. So that's certainly something that should be talked through before having a company and have a strategy about well, I'm going to have this cash, I know what I want to do with it, and we'll talk about some of those kind of options here, not as financial advice, but just more on the tax side of it. So that's my agreement. If you like, we'll also discuss associates and principals, because they both have different, unique problems, I suppose, if you can call it that.

David:

So, starting with associates, so hiring associates, use a limited company, as mentioned, to control the large tax bills that come with that. We often get um associates saying look, I've had this tax bill of 90 000 pound. What on earth is going on? Should I be paying that much? What can I do about it? And conversation is usually well, you know, you earn money, you pay income tax on it. But if you can, if you're not spending all of it and you've got a plan for that money, then yes, the company can help. You Tends to be that we like for people to have less than 100,000 pound in terms of their income from the company, because at that point you still keep your personal allowance. If you draw over £100,000 from the company, you will lose the £12,570 tax-free allowance and on that chunk of your income above 100, you are effectively paying 60% tax, which is not good for you to be doing, basically, and just controlling that. So keep yourself at 100, but certainly the lower you go, the more you save. So you've got your company we need to think about well, have you claimed all for your expenses that you're allowed to and any allowances and any basic things that can be done to minimize that because, again, minimize the tax, that's more in your pocket.

David:

Um, investment side, you've got payments into pensions. So this is a big thing again about getting your income below 100 000 and this also applies to associates who are not having companies that you can put money into a pension to bring your income down Again, avoiding that 100,000 plus trap. Paying into a pension, you can do that into a private pension for your company. It is fully tax deductible, so that portion of your income that you put into a pension is effectively subject to zero tax, which is really good and it's an expense. So I want to make that clear that payments into a pension, whilst they are investments, they are also an expense for your tax purposes.

David:

Other investment options kind of tend to be around putting into a property or stock shares and crypto. The difference with those types of investments is that they are not an expense and that can be sometimes confusing and we get clients saying, well, look, I put a hundred thousand, it's a crypto, so I've got no profit this year, but it's not an expense, it's an investment. It's only pensions that qualifies a deduction against your income for corporation tax. So just to make that clear. Um, holding of the investments. So it's quite common for properties to be held in a separate company and that is tend well, that tends to be driven by the lenders.

David:

Who wants to have a charge over a new, clean company that is not mixed in with any other activities, whereas, um, it's quite okay for an associate who wants to put money into crypto or stocks or shares to hold that in their associate companies. There's no, there's no requirement to move it out. If it's just stock shares and other investments, it can become a problem if you then have an associate dental company that becomes a practice owning company, which does happen. So, again, talk that through with your accountant about well, should I have my investments in a separate company? If you've got aspirations to want to practice? How would that work in terms of splitting those two things out? Because it is important and we'll get to that when we look at practice owners in a minute, okay, nice one, by the way, David.

Dr James:

I don't know if there's any way to just make the slides just a little teeny bit bigger on the screen, because, if possible, if it's, if it's not, it's not no, it is.

David:

I must have done the wrong. I've done the wrong screen again. Let me, let me start again it's all right if it's.

Dr James:

If it's not, if it's going to be a big problem, we're, we're fine. The main uh value is coming from what you're telling us let me see, I'll tell you a third time.

David:

Lucky let me. Let me start again it's all right.

Dr James:

It's all right, no biggie, uh so one, two, so is that big? Oh, that is so much better. I'm glad that I asked excellent excellent.

David:

Thanks and apologies to. I've got three screens and just, yeah, it's not always obvious, no problem. Okay, so this kind of slide just is a list of common expenses that we see. It's a PDF that is available and I will send this. James, you can pass this on afterwards.

David:

Just look, these are things that you could be incurring, that you might not be telling your accountant and therefore you could be missing out on some tax relief. And again, this applies to limited companies as well as sole traders. So if you're an associate with a sole trader, this would still apply to you. Um, I'll talk through it because sometimes that, you know, can be interesting. Um, so, starting at the top, protective clothing so if you've bought scrubs and things that are 100% clothing for work, that is a tax deductible expense, so you can claim for that. The cleaning of that is also. So if you've got a bag of scrubs and you're sending it to the cleaner once a month, that's also a business expense and it's tax deductible. The cleaner once a month, that's also a business expense and it's tax deductible.

David:

Printing, postage and stationery If you buy pens, stamps, pads, diaries we tend to say, you know, you claim about £50 a year just for that sort of PSP. We call it printing, postage and stationery, travel expenses. So, as a dentist, you will be traveling for courses, you'll be traveling to see you know business mentors, potentially suppliers. You need to keep a record of that. If you've driven, then it's a case of claiming 45p per mile and just telling your accountant this year I've done a thousand miles or two thousand miles of business travel. Um, the requirement at your side is to keep a diary. You might, you might, spend your phone. You might have just said something in your diary that says today I would travel to london or to scotland or wherever, but you can claim for that. That is a business expense. So is your phone. We all use our phone, for I think I use my phone. Majority of my phone is for business work. So I think that would be the same for a lot of, a lot of dentists. And and we do ask you to tell us how much of your phone do you use Is it 50%? Certainly somewhere between 50 to 80. A lot of people will say it's used for business, so that can be claimed as an expense as well. You will be paying for subscriptions, so your GDC subscriptions, bda subscriptions, those are things. That should be obvious.

David:

Course fees is where it gets a little bit colourful, and we have a lot of colourful conversations with the clients about course fees and especially if they're overseas. Now is it an expense? That's the first thing. So if you're going for CPD to go on a course that relates to the work you're currently doing, that is fully tax deductible. So what about its location? Does it matter that it's in dubai or does it matter that it's in london? No, if it, if you go in on a course in dubai and it's for the work that you're currently doing, that is still an expense, as is the travel, as are the hotel costs.

David:

Um, where it gets colorful is the timings involved, because hmrc will want to say well, look you, you travel the day before you land, sleep, start the course, sleep, come back, and if there's an element of personal enjoyment, um, they won't give you the uh, the travel in those days hotels. So we do tend to get asked that quite a bit about what if I stay an extra week or a few days here and um, yeah, that that's the official line with it. So we sometimes get asked well, look, the course is finished on a thursday and on a friday. I'm, you know, I want the friday to myself and what? What can I do? And if you've got an extra day, why don't you just go and talk to a lab out there or some kind of supplier and you can tell me that that was, that was a business day as well. So just be reasonable. But courses tends to be, especially as overseas travel, a bit colorful in terms of what is what is possible, because everybody likes holiday, don't they?

David:

Um legal and professional, so it should be pretty straightforward. Unfortunately, you know, there are lawyers out there who do make dentist lives difficult and patients are advertised and if you've got a legal fee you've had to pay to defend yourself. That is fully tax deductible. Um legal fees. That might not be so obvious and and it's worth saying for education purposes, is if you're buying a practice or you've put an offer on a practice and you've had to pay legal fees and you've incurred costs but it doesn't go through, it falls through for whatever reason, you know, your lending pulled out at the last minute or change of circumstances, legal fees for an aborted purchase are unfortunately not tax deductible. So that's, that's the bad news on legal fees, your accountant's fees, your accountant's fees to prepare your tax return and all the phone calls and so on is an expense, so make sure that's included, as is your indemnity insurance.

David:

Any books and journals famous for charities, computer expenses you might put a laptop that you do work on. That's, that's a business expense, as is an ipad. You can be using that for looking at scans and x-rays and so on. Um, use of home you can claim 302 pound a year, no questions asked. So make sure that's done. And any other expense that is 100 business related. So if you paid for it and it was purely to do with dentistry, you can claim that as an expense. So those are your common expenses.

David:

Thinking beyond that, we then get into, I suppose, a bit more thinking on planning. So you have a limited company company you're drawing salary and dividends, um, you're taxed on that. Now, yeah, it's, it's. I mean it's a good question to ask what? What have we got available within the family? Is maybe a spouse at home with the kids? Or do they have maybe a lower rate of tax they're paying? If they've not got, you know, a very high paying job, they can be involved in the business, either as an employee or as a shareholder, potentially both. What's right for you depends on a lot of circumstances, but certainly one of those two options would be, you know, advisable. If they're paying a lower rate of tax, why not involve them? It has to be done correctly. But obviously talk that through to the accountant. I've put on there other family members as well, just because it's something we get asked a lot about.

David:

Grandparents, if you have a limited company, we get asked can I employ my grandparents? The answer is is you can give a job to whoever you like. Um is the answer. Now, should you is the question. So I think where it becomes a good idea is if you are supporting your grandparents anyway. So you know you, they've raised you and you want to support them in their old age and they can do work for you. Now, whether that's good work or bad work is between you and them. Hmrc can't do a performance review on your parents, but if they can generally be justified to be doing some work, you can employ your grandparents. And and that money that you're giving um to your parents and is an expense for the company. So again, it's bringing bringing the tax liabilities lower.

David:

Director's loans is another method of taking money out. So getting money out of a company. To you personally is one of three ways salary dividends or loan. Director's loans have to be paid back and if they aren't, then they are just converted to a dividend. So not so tax-sufficient. And that section of 455 taxes is essentially a dividend tax. But where director's loan can be tax-sufficient is actually if you are planning to loan money to your company. We often see this where, again, going to the practice acquisition so dentist has a limited company, has put an offer on a practice he's going to buy. So dentist has a limited company, has put an offer on a practice, is going to buy, but needs to, you know, get the deposit from his savings account into the company because it's the company buying it. That money that is lent to the company is a loan to the company and that can be used to offset against any dividends that are taken. So to bring to convert that, convert dividends taken into actually a repayment of the loan and, you know, bring the income tax down that way. So loans to the company can be a good idea and bring tax down. So we like that one.

David:

Um trivial benefits, you know not everybody is aware, so it's worth adding on there. You can, uh, pay 50 pound non-cash expenses per employee, up to 300 pound per year. So if yourself you have a limited company, you are a director, you're an awesome employee and perhaps your spouse is also an employee, so between the two of you can have 600 pound of christmas presents or whatever you want to choose, so that's good to know. You can also on top of that so not included in that you can also host an annual party. So you know, go out for a nice meal at a cost of £150 per head. That's an annual allowance there, so that's also good to know.

Dr James:

David on the £50, the £300 per year employee that's divvied up into the £50 non-cash expenses. Does that also apply to directors?

David:

Directors are employees.

Dr James:

yes, oh, there you go. Okay, good, just carrying that one up, wasn't sure.

David:

No problem, good question, um, you also have business meetings and um again, let's say you are going to a meeting where you are discussing business, the business of dentistry. Let's say you meet your principal for a coffee or for a meal to talk about things that can be paid to the company. It's not an expense in that it won't reduce your corporation tax, but it's better to be paid from company money that's not been subject to dividend taxes, because money in your pocket you've paid you know, 33, 39, whatever the rate is that you're paying dividend taxes on. So it's better to do things like that through the company. So that's good. We've talked about mobile phones and laptops. I won't say that again. Cars is a big expense for people and your company can provide that to you as an expense and your company can provide that to you as an expense. That is much better than buying a car through money that has been subject to corporation tax 25% and then dividend tax of potentially 33%. So if you are not adverse to an electric car and some people obviously prefer petrol, but a lot of our clients do have electric cars and the answer is always put it to the company it's going to be an expense for you, as is a bicycle. So if, like me, you've recently taken up road biking because you like to get out and about, your company can buy you a bike, and these things are expensive, sometimes up to tens of thousands of pounds. So if you do like the two wheels, you can also buy yourself it through the company, again saving the corporation tax and dividend taxes on it. So don't uh, don't, miss that one if you, if you do ride a bike, um, okay, so next slide is on properties.

David:

I want to talk a bit about properties because it is very common. We have a lot of dentists who are limited companies and everybody loves bricks and mortar. So into property. So just an overview here. So I mean, what's the benefit? So, as a higher rate taxpayer, there's no tax relief for mortgage interest. That was abolished years ago, which is really horrible because you can. If you buy a property personally, you're a higher rate taxpayer you rent it out for a grand, you pay in the bank 800, you know 900 a month in interest, but you're taxed on the grand. So once you've paid the tax, often we have, you know, situations where people are putting money into the property just to cover its expenses. So that's cash flow negative, not not good at all. That's not the case for companies, because companies get the interest as an expense that brings the tax down, um. So it says there um, lenders will want a special purpose vehicle, ie a separate company for that. They want it clearly separate with a charge that only they have against the company. So how do we do that? We lend the money from the dental co to the property company and as long as you have the same direct to shareholders in both companies, that's fine. There's no tax issues there and it can be written off in future. If that's a decision that's made in future without tax consequences.

David:

I have put under consider exit taxes because it is something that people often forget that you might buy a buy to let in the property. So you might buy a buy to let property in the company. But if I want to buy that from you, I don't want to buy a company, so I'm buying the property from your company and the money is trapped in the company again, which is fine. If I want to buy that from you, I don't want to buy a company, so I'm buying the property from your company and the money is trapped in the company again, which is fine if you want to invest it, but not fine if you you need to take it out as a dividend. So when you're doing your sums, just make sure you've thought that bit through, that you might have to pay dividend taxes when it comes out. However, as I say so, property is very popular and it can soon. You know some associates who are quite adamant. They do not want to be practice owners and they're doing very well in property and it grows and grows and grows.

David:

Over time it becomes a good, good problem, but a problem for inheritance tax. Uh, which is what I want to talk about. Uh, so this slide just shows the setup of you know, the two companies. Um, yeah, so inheritance tax. I want to talk a bit about inheritance tax because it's becoming a bigger problem for people, since, in the budget now we have, pensions also form part of um of people's taxable estate, so inheritance, that's a much bigger problem for people. Now there is um work in the background, people trying to get that um pushed back on. But as things stand, pensions are now part of your estate, so people are going to pay more inheritance tax.

David:

Um, there is some planning that can be done, um with property companies in fact in any company but I'm going to pay more inheritance tax. There is some planning that can be done with property companies In fact, any company. But I'm going to talk about property companies because you tend not to pass on a dental company to children. You tend to sell it and then move on in life. But this also applies to any company, and that's growth shares. So's a growth share. So growth share is a fixed line in the sand on the value of a company.

David:

So the scenario is is this James, you have a property company that, at today, is worth 1 million pound and it's in a fantastic area, and we sit down.

David:

You tell me, David, it's worth a million today, but in 10 years it's going to be 2 million.

David:

And I've got a problem because the doctor's told me I'm not doing so well and I might not have so long to live right.

David:

But even not in that extreme scenario, we've got to think about inheritance tax because your plan is to hold this long term. So what growth shows do is we have a corporate lawyer who drafts articles and a shareholders agreement to convert that one million pound and to crystallize it into the existing shares, and then we issue a separate class of shares called growth shares, and any increase in value is allocated to those growth shares and those growth shares are issued to the kids today. So any future value is passed down tax-free, because it's not a passing down of value, it's an issuing of shares that subsequently grow in value. So I'll say that again the million pound is put into the existing shares that you keep, but we issue new shares and any growth is automatically allocated to those which are given to the children and they're worth a pound today, but in 10 years they're worth a million. That we know. So there's a million pound passed down tax-free and that's a special kind of tax claim there and it's that's.

Dr James:

That's a hack right there you can, that you can allocate all of the growth to those shares that have been distributed. I and that's.

David:

Yeah, that's fascinating that you can do that works really well for investments because investments, by definition, over time go up in value. Yeah, um, and it's more so for investments because practices, as I say, most people sell it on the open market and don't. It's quite rare you pass a practice down like that, so just wanted to uh mention that's a good tax planning opportunity there.

Dr James:

Presumably that works outside of property with other assets as well, just maybe not done as frequently.

David:

Correct. Yeah, it's shares, so it's companies. But if you have assets within a company, same principle applies.

Dr James:

Yeah, interesting.

David:

Yeah, righto, so that's associates. Um, I've done a slide on incorporation for sole traders and I think it's important to flag that. You know, often people think that you know, if I draw all the money from my business, it's not right for me to have a company, and in general that's right. But there is an exception to that and that is if you're a practice owner with a bank loan, and probably shouldn't say this, but of all my clients, the ones who are most stressed and under financial pressure are principals who bought a practice that's not inside limited company, because they get hammered on paying the bank back and paying tax on the bank repayments. So whenever I talk to an associate who's buying a practice, I will always try and steer them toward well, can you buy it through a company? If it's NHS, you can't. If it's not already incorporated, you can't, because you buy an NHS contract through a partnership mechanism where you join as a partner and the old principal retires or comes off the contract and a company cannot be a party to an NHS contract. It can be an owner but not a party. So on a sale, you can't do it. But if you've bought, you know, or if you own a practice and it is a sole trader and you do have a bank loan, you can incorporate it. So you know. Going back to the title, how can you extract effectively extract wealth from a limited company or have one in the first place? An example here on screen. I'm not sure if I can see this, but this um practice is making profits of 283 and, on the basis that all, all profits are used personally because we've got the loan repayments of 56,000 that are still subject to let me get the mouse on it that's subject to income tax, this client is still going to save 8.8 thousand pounds per year in tax.

David:

Incorporation of your sole trader practice is something to think about as a good planning opportunity. It does involve a refinance, so you'd need to get a new loan in the company name. Perhaps that as a good planning opportunity? Um, it does involve a refinance, so you'd need to get a new loan in the company name. Perhaps that's a good thing, because interest rates are coming down now, so you might have a high rate that you could actually benefit from a lower one. Um, but it stops you paying income tax on the part of the profits that you pay to the bank and it could well save you tax. So, um, also, it's worth saying, the NHS local teams are a lot more happier to not give you a headache now, so they understand the pressure NHS practices are under because you need to get their approval, and they understand the pressures that are on the NHS practices so they give you less headache these days. It's not guaranteed, but it's worth mentioning. Okay, yes, worth worth mentioning. Okay, just, uh, radio. So the sale of next is for. So, for principles, the sale of your practice will be probably the most significant financial milestone of your career.

David:

A dental practice is a very valuable asset. Um, the market wasn't great last year, so we had a good year 2022, for sales. Forputs were very active, interest rates were low 23, 24, not great. Not great in terms of the offers that we had for clients and deals that actually completed. There were a lot of clients who got offers that were messed about and then they fell through for whatever reason, and multiples were pretty consistently low.

David:

It's getting more active now. Multiples are better. So last year it would have said 6.5 was about the average for profits. In terms of valuations, 7.25 is more consistent now. So people are paying more for dental practices, corporates are and, as I say that's fueled by what interest rates are coming down, so corporates can buy cheaper, and that has an impact as well.

David:

Um, and there are corporates out there who are getting ready for their exit and that puts a lot of pressure for people to buy and, you know, be part of the exit of that corporate, which is good. So we are seeing more offers for clients to sell. So when you're in that situation, whether it's this year, next year or for the future, you've got, I suppose, two options for you in terms of capital taxes when you sell. You have BADR, business asset disposal relief, which is 14% at the moment, going to 18% in April, or substantial shareholding exemption if you sell via a holding company, which is zero, which sounds really good and that can be certainly better than 18%, but it's only for a certain scenario, if you're going to reinvest the money and I'll explain in the following slides which is what it says there. So consider SSA if reinvesting the funds.

Dr James:

If you're a UK dentist and you wish to add to your verifiable CPD portfolio for this learning cycle, it's worth knowing that Dentists Who Invest has over a thousand minutes of free verifiable CPD on our website. Verifiable CPD on our website Just simply head over to wwwdentistwhoinvestcom and hit the video slash CPD tab and you can go right ahead and help yourself to as much CPD as you need. You'll also find a link that takes you straight to the CPD section of the Dentists Who Invest website in the podcast description off the Dentists Who Invest website in the podcast description.

David:

How is this relevant? So if you own your dental practice fire-limited company, you can sell the shares to the buyer and you will potentially pay 14% if that completes before April, or 18% thereafter. There are conditions for that. So for the prior two years up to your sell, you have to have been an employee or director and owned more than 5% of a trading company. And that's relevant because when we talk about investing through your company, we have some clients with over a million pound in crypto it's just done really well and over a million in property. And if that's all within the dental practice company, is it a trading company anymore or is it an investment company? And if it is an investment company, so 51% more of assets and trading activity you won't get the 14%, it will be 24. So for dental practice owners, most likely you'll have your investments outside. That's one strong reason to do it to not jeopardize your business asset disposal relief, to pay the lower rate of tax on sale, but also, if you think about it, if you're selling your practice and your practice company has all this investment, you want to retain that because you've invested for long term. So how do you take it out? It's complicated. It's better just to have it in a separate company through loans, and then those those loans are dealt with on the sale. It's much easier to deal with it that way. So, um planning uh opportunities around that? Certainly um shares can be gifted to your, so you get a million pound of lifetime gains. If the practice is going to make a gain of 2 million, why not have that split 50-50 with your partner? We'll save a lot of tax. Children it's possible to make your adult children so 18 plus shareholders if we have some practices that go for 4 or 5 million and you need to spread it out a bit further. However, kids are different than your spouse because your spouse, you live with everything shared um hmrc. Well, if you're giving shares to your children, if you're gifting shares, you've gifted it. A gift is a gift is a gift, that's what. So once that money's with the kids, it's. You can't ask them to pay it back. They might you know, quote-unquote buy you things, but that's out of their good heart and not immediately, certainly. So that's how that all works and that's how it's structured.

David:

Dental practice One company, investments, the other nice and easy on the sale, the dental practice goes, the investment company stays. Next is if you have a very clear plan that I'm going to sell my practice and I'm going to get £2 million and I'm going to reinvest all of it in this new business that I've got. I'm very clear on property and it's going to be reinvested. There is something called a substantial shareholding exemption where you put in a holding company like this, so the holding company now owns the dental practice company. You may or may not have a property company in there when I put it in for illustration purposes. And it's the holding company that sells the shares and gets the two million. And if it's owned the shares in the dental practice for more than 12 months, um, with a few other conditions, it will pay zero percent because there's an exemption for that, which is great, because why pay tax if you don't have to? If you're absolutely clear, you're going to roll it over into new things.

David:

And we often get asked on holding companies um, should I have one? I'm not sure what I'm going to do. So I've got a dental practice and I've heard, you know, somebody's told me to put a property company, a holding company, in place, and I always say, well, if you are not clear right now, then don't do it because, don't forget, you've got 12 months pre-sale um. A sales process will take you six months minimum by the times heads of terms are signed and you'll be talking to buyers for two, three months before that. So you've easily got nine months anyway um for you know, to get through and pretty close to sale you'll you'll know what your plans are so you can put in a holding company towards the end. But if you start with the one and you need to take it out, that's complicated and time consuming and expensive. So my kind of default position is don't have one if you don't, if you're not 100 clear why you need it, because it can always be added in later and David.

Dr James:

Just to clarify one thing on that, because I was having this conversation recently, uh, with my accountant and he was saying that there's, if you do a share transfer to a holding company, there's not normally a tax liability for that, is there?

David:

No, there's a process to go through to make sure there's no issues with it, called clearance. So there are tax laws on transferring the shares and we write to HMRC to say we are seeking advanced clearance that this proposed transfer of shares is outside of related employment related securities and there is no charge to tax by doing it. There is one department at hmrc that works really well and it's this department reconstructions. They reply within two weeks and you can talk to them on email. Every other department is phone call, but the reconstructions department, because it services big multinationals, is actually very well run and you will usually get a reply within two weeks to say, yep, go ahead, no problems.

Dr James:

So it's very quick to put in place as well interesting, because that's just something I mean we're taxed for everything, aren't we? You know it feels like, but that's something I mean we're taxed for everything, aren't we? You know it feels like, but that's something that we're not taxed for, which I find interesting yes, and I think rightly so, because you're not receiving any money.

David:

It's different, and we had this with a client recently where they were actually transferring shares. So, um, dentist a wanted to give his shares in his company to another dentist for shares in their company. So swapping shares between due dental practices, and there was no cash being transferred but there was a tax charge because there's an exchange of values and there's no exemption for that. So it was a bit difficult because there was swapping shares without any cash moving but they had a 14% tax charge and, unfortunately, nothing we could do on that one. There's not an exemption for that. But where it's a company that you own, as you say, there's no cash moving hands. So why should you pay tax? Okay, so next slide Extracting cash. Okay, yep, uh, so next slide extracting, uh, cash. So it is that we. You know it is quite good.

David:

We do see clients who have not invested money, they've not put it into stocks or pensions or or property, or they have done, they've got cash left over and they don't want to take it as a dividend, because why would you if you don't need it? Um, it's more relevant to principals who are selling the business and you know there is a way that says that you convert. You can convert cash to capital. So by default, cash is usually taxed as income. But if you include it on the sale of your practice and the share purchase contract is worded correctly, that cash can be bought from you by the buyer at capital tax rates of 14 or 18%, which is quite handy. So you don't need to freak out. If you've got hundreds of thousands in cash and you're selling your practice, you don't need to take it as a dividend. You can just add it to the gain and be paid at 14, 18%.

Dr James:

So that's another way way to to deal with excess cash interesting one on um entrepreneurs really for badr, and maybe we're getting a little bit beyond the scope of this presentation, but they seem to. I mean, once upon a time it was 10 million right tax-free, and then 10, and then it was capital gains above that, and now it's like, uh, 1 million, isn't it 1 million?

David:

but you still?

Dr James:

get taxed you still. You know I get taxed 14 on that 1 million or, and it will be 18 soon yep, and it was 10 million at one point.

David:

I remember those days and I don't want to sound pompous, but 1 million today's money is quite different than 10 million 10 years ago. So there's no adjustment for inflation at all. There is there.

Dr James:

I'm going to get my brilliant exit in like 10 years, 15 years, Do you think? I know it's hard to comment, but do you think they're going to keep it in some form or just keep watering it down just out of interest?

David:

I think we've lost a lot of people through that. I think people have gone overseas who don't want to be tax resident because of capital gains tax. Now I think we have seen that it's been quite in the news a lot Very prominent wealthy people who have moved overseas because they don't want to pay that right. So and that's bad for business, that's bad for that's bad for the business of raising taxes. We want people to stay in this country and pay taxes. The more people that pay a lower rate is better than because the people that will move will move overseas are the people with the most assets, if you think about it. So I don't think it's good for business.

Dr James:

Yeah, remains to be seen that one is here. For the moment, when you get into these things like running a business, and you're like you know, most of the time it's quite a while before you get your exit. You know what I mean and you kind of you get into it with this in mind and then there's no guarantee that it's going to be here or it's going to be watered down further still. But yeah, no, I was just interested on your thoughts on that one. We can't know what. We can't predict the future.

David:

No, and it's politics, isn't it? So what's right? And what's politically sexy is two different things, isn't it so cool? Just interested to know what you thought we'll see. Okay, so yeah, that's it. That's the last slide, so I hope that all right sorry, I spoke quite fast there.

Dr James:

I think I got a bit excited on my no no, I think that was the perfect tempo personally, and I think we actually all owe David a clap up, so I'm going to start to clap up on everyone else's behalf. I'm sure there's people clapping behind the cameras this evening as well. David, thank you for, uh, sharing that enlightening as always. And you know what I said that, David, before we did this webinar tonight. I was like, right, tell us about all the stuff that we know about, just so that we can have a recap and ensure that we're covering all bases and that that tax deductible that little slide that you had of all tax deductible expenses that was a really good one to screenshot, which people might like to do in the recording of this webinar, which we're going to be releasing to the mailing list very soon. So, yeah, recovering the stuff that we know, but we want to ensure we've covered all bases and also the things that people don't know about as much, which is really interesting because, actually, whenever we were talking about badr just a second ago, I think there's lots of people who still don't know about that and lots of principles as well that I talk to whenever we bring it up and it's all. It's all just about that's.

Dr James:

Yes, we were talking about it getting watered down. It's still one of the lowest taxes that there is and it's one of the incentives that there is for people to go out there and still be entrepreneurs and be principals in this day and age. So yeah, some interesting stuff, guys. We said that we would do some questions. We've got about 15 minutes for questions, so what we are now going to do is rattle through as many of them as you can, and I can see that there's been quite the influx in the chat box, which is cool, which is good to see. So, David, if you're happy, should we just go ahead and get cracking?

David:

See how far we get. Yeah, that's a really good question, sir. Yeah, so I think the first one.

Dr James:

Yeah, I'll read them out if you want and you can do the thinking. How about that? Yeah, I'll read them out if you want and you can do the thinking. How about that? Cool, yeah, all right, cool. First one from Ryan Stewart. Shout out, ryan Stewart, hope you're doing good. Is the buying of lunch coffee Ryan's thinking of a stomach respect? Is the buying of lunch slash coffee during a normal working day a business expense?

David:

The answer's in the question. During a normal working day, no. But if you, um, let's say you wanted to have a catch-up with, uh, one of the nurses or the practice manager and you took her out for a cost of coffee, um that would be put on a daily basis? No, it's only if it's because it's. What's the purpose of it? The purpose of that coffee is to fill your stomach.

Dr James:

But if you've had that coffee to have a meeting with somebody, then you can't do it Good, and that's a good example of something that you, in the second situation you were talking about just a second ago. When you're taking somebody out for lunch, you can put it through the limited company, but it's not tax deductible, right? But it'll still be cheaper to do it that way. Cool, Good stuff. Next question from AA pseudonym there, I believe.

David:

Can you involve children over 17 years of age and are there any limits on their involvement? Aren't be shareholders and potentially that's, you know, not a good thing either at that age. But they can be employees so they can do work. Um, obviously, you've got national minimum wage to think about, so you know they're an employee. You have to not pay them pennies.

David:

Um, in terms of limitations, I think that hmrc would look at that and say, well, what work have you given them? Um, you wouldn't give them a practice manager's job, you wouldn't give them cqc duties, but they could be doing social media work for you. Um, admin work. And you would tend to say, well, yep, I've employed my child. Giving them work to do, whether they do it well or not, is, as I say, hmrc can't performance manage your staff. Some staff are good, some staff are not great, but it should be relevant in terms of their market hourly rate. So if it wasn't your child, would another child be paid that? And what hours are available to that child outside of school? But going back to involving a family member, your child is your family member. You're giving them pocket money. Let them earn it. So, yeah, definitely.

Dr James:

Good stuff. Next question from amanda amanda nailer is an electric car as an expense only relevant if buying new um, no, but, and it's only for limited companies.

David:

But if it's new or second hand, it's still a tax expense. The only difference is a second-hand electric car um, isn't 100. Expense in the first year is 18 per year. So it's different, right? You still get the tax reports over a longer period of time, um, that's if you're buying it. If you're leasing, then it's just whatever you're paying monthly for it, but you can still get it as an expense for the company cool.

Dr James:

John gaddis, can you get the cycle to work scheme, the bike purchase and still claim some motor expenses for between practices, courses and meetings? Yes, you can. Yeah, yeah you're not.

David:

You're not forced to. You know, hmt can't force you to cycle. Every day it rains quite a lot in this country, so one day you might cycle, one day you might go in the car seems reasonable.

Dr James:

Jeremy williams. Question from jeremy williams used cars can be claimed, but are claimed at 18 a year for five years, correct? Yeah? Yeah, I think it was a statement more than a question, that one, but yeah, it's accurate, okay. Question from Arps Do you still need to pay IHT on tax? Sorry, sorry, big pardon. Do you still need to pay IHT or tax when you sell the practice and you're resident, for instance, in Dubai?

David:

Yeah, yeah, um, I think that one needs a proper look at before yes or no. Um, can't give you a yes or no or not. I would have to look at it and see how long you're there. For when did you move? What's the um? What's your involvement in the company at the point? There's a lot in there, um. So get it looked at properly. I couldn't give a yes or no or not seems reasonable and you know what?

Dr James:

it's probably a good point to mention that after this webinar, we are going to be sending out an email which has an opportunity within it to connect with David. There's going to be a link in there that you can use if you want to speak to David about anything that we talked about tonight, because none of this is really substitute for good tax advice. David is also available on the facebook group as well, Mr David Hossein, so feel free to look him up if you want to ask anything more specific about we were talking about this evening specific and relevant to your own personal circumstances. Next question from simab. Two questions from simab. What is the maximum amount you can pay grandparents for child care? Would that would be classed as an expense?

David:

um. Child care is not an expense, but you might pay them for doing other work.

David:

So this, this is where you've got to think it through. So you, you want to pay the grandparents because they're helping you out with the kids. You can't say that because that's not a business expense. But you might be paying them for help with admin and they mind the kids for free, if that makes sense. It's how it's packaged up and sold to the taxman, and often it's a conversation around it looking presentable and reasonable, and there's usually a way. There is usually a way. We do have people who go down that route, but you are employing them and giving them duties that you can kind of show, but they're minding the kids for free as a a result of it and it's it's, it's kind of an understanding. Uh, if that makes sense, but from hmrc's perspective, you're not paying them to mind your kids. They would not give you that at all. You can't. You can't do that fair enough.

Dr James:

And second question is for the 150 pounds annual party allowance, does your company bank account or receipt need to show the practice, the precise amount of 150 pounds exactly?

David:

I would take a photo of the receipt and just keep it in your phone. It's uh, it's better to have it. It's better to have it and not need it. And you know, be asked and have an inquiry and be like, look, my bank statement says whatever san carlos office I'm doing. But it's also like they might want to see the receipt and look, we haven't had this. But I always do it for myself and I talk like just take a photo, because if they ever wanted to see how many stars if you go, how many meals, because per person and that detail would be on the invoice.

Dr James:

So yeah, is that £150 per head? Yes, per employee Per annum. Okay, that's quite the party then, right, you can really look after them. And is it just the one? Just one off.

David:

No, no, you could have two events, each £75. So it's just, that's the annual allowance.

Dr James:

It doesn't have to be one of them, right, I see, fair enough. Annual allowance doesn't have to be one of them, right? I see? Fair enough, all right, no problem. Another question uh, as a dental associate, can I employ children aged over 18 pounds for my limited company?

David:

if they're doing what you can give a job to anybody, it's. You know hmrc can't tell you who to employ and who not to employ, but with it being a family member, they would again look for what are you paying them versus what you would pay joe blogs off the street? And if your kids are doing you know your social media and marketing, which you know they do kids are very good at that you might give them some money and you can do that through payroll. Is is the right way to do it.

Dr James:

So absolutely interesting. Next questions come in how can I access the recording? Recording is going to be available on the podcast, the dennison invest podcast, if you like to listen to it in an audio format. We're also going to be releasing the full presentation, the full video. We're also going to be releasing the full presentation, the full video, on the mailing list and the website, so that should be out this Saturday. If not, it'll be very soon next week. So definitely two best places to keep your eye on is the podcast and also the mailing list.

Dr James:

And also another thing that I meant to mention earlier you do actually get some free CPD for attending this webinar tonight. You just have to fill in a short questionnaire that's going to be included as part of that video that we just talked about a second ago. It's going to be the full whack. It's going to be the whole 60 minutes. So you might as well claim it if it's there and it's free. So good thing you know. Thank you for that question. Next question from pratik what are the ways to be tax efficient with the company when you're salaried and already earning in a higher tax bracket?

David:

I've been exploring this and there seems to be minimal ways, mainly set contributions so I think, if you're saying that you're salaried and you don't have a company, is that, is that what I think maybe, if I read it out again, what are the ways to be tax efficient with a company when you're salaried and already earning a higher tax bracket?

Dr James:

yeah, there's kind of a, I think. So from what I gather, you're saying that you're employed oh, he's put a comment I'm.

David:

I am salaried, but also have a company for other purposes, so oh right, that makes sense, then okay it's the same principle. Have the money that you can go into the company and, um, don't draw it, that won't. That'll mean you won't pay income tax on it, and then all the things we talked about apply to that company, though fair enough.

Dr James:

Hopefully that clears things up. Fatigue let us know if we've got that situation right just there. And that, that, that, that, yeah, I don't think there is too many exotic ways beyond what we said this evening. Is there David?

David:

No, and anything exotic, have double checked, because exotic things have a way of causing future exotic problems for you.

Dr James:

Seems reasonable. John Gallis, what is the benefit to a practice buyer? Hang on, let me just see this question right here. A practice buyer to buy cash in the business? Is there a limit to this?

David:

there's no benefit because you pay it out to the seller. Um, and there the question is there a limit? It's a great question because it's potentially a problem for the seller, not for the buyer, because if um, you know all the deals that I've done, you know that cash is paid out to the seller, so you don't get it. And why would you? Because you have to then finance that acquisition with interest and so on, so you don't want to inherit a lot of cash. Um, is there a limit to it, potentially for the seller, if they've got three million in cash again going back to is it a trading company or an investment companies? But it's an issue for the seller, not the buyer.

Dr James:

So you'd be okay with it. Thank you for that. One question from davik patel can your dental company loan money to your property investment company if the directors and shareholders are not the same dental equal husband and wife, property equal husband with third party person? If not, is there a way to do it and what are the implications and things to consider?

David:

it is possible. So the question is can you loan it? Yes, you can. You can loan money to any company, um, the kind of where I say there's no tax problems, where it's common control and ownership is where you are going to write that loan off, but where you were doing it with a third party. I will assume that you want that loan repaid in future, which is fine. It's only if you're going to write the loan off, um, for you know if one business is being sold or you just don't want to repay it for whatever reason. But when there's a third party involved, a loan is a loan, that's a loan. It's absolutely fine to do that. Any considerations have it all in writing, a proper written agreement, preferably drafted by a lawyer, because you know that's good business practice the writing off thing that you mentioned just a second ago.

Dr James:

I mean, surely it can't be as simple as you have a dental company, you lend a whole load of money over invested in properties, and then you don't have to pay a penny back. Is there some sort of penalty there?

David:

no, there's no penalty, but there does have to be a director's board meeting, a resolution to approve the write-off amounts signed, dated. The buyers of the practice would. Their lawyers would want to see a copy of that documentation and we prepare those. So it's um, it's possible to do, it's not. It's not much work, but you do have to have the paperwork has to be properly minuted, board meeting dates and so on, signatures because that seems like a little bit of a hack right there.

Dr James:

That seems like a way that it's possible to get money very tax-efficiently across another company and then invest it.

David:

Yeah, it is and hmrc say that you can't set out with that intention. So you can, because a loan is a loan. So you make a loan with the intention of it being repaid. But it's very common that circumstances transpire that the company receiving the loans invested it. It can't repay it without liquidating the assets and the directors have agreed not to recover it. But it's.

Dr James:

You can't set out with that intention formally, but it's, it's very common and it's enough to be by way of, by way of an explainer as to why you're doing that. It's enough to be able to say I've bought all these properties and I can't conveniently liquidate them absolutely, and that's fine, even though, even even though, on the balance, there is enough money there, right, yes, but it's not liquid, is it? Even though in the really, why? Wow, okay, interesting, there we go, interesting there we go. Glad you asked that question, debbie. Yeah, that's a really interesting point there, anyway, um, okay, coming up to the final whistle, now I think we've got time for one more, and that's from ryan stewart. Again, trivial benefits. Can I buy six 50 point amazon vouchers? You can, right, you can, as long as it's not cash, isn't it? Vouchers are cash, oh, are they? Oh, never mind, uh see them day without these being redeemed?

Dr James:

single 300 pound transaction. Ryan, why do I get the impression you're going to rush off after this webinar and do exactly this? You've thought this through. Uh, deemed a single 300 pound transaction 600 pound, if I go mad for the wife and and who is my secretary too, okay, uh, or do they need to be spread out throughout the course of the year? Basically, is what ryan's asking ryan sounds really fun.

David:

Um, yeah, it is. It's limited to 50 pound per transaction and it can't be vouchers. Vouchers are cash, basically, so right.

Dr James:

But then the second part of that I guess what ryan is getting at is if you do them all in one evening like a little flurry, three, uh, six, fifty pound vouchers that's okay or not? Sorry, not vouchers.

David:

Six fifty pound expenses yes 300 pound of wine, that's 50 pound each in one transaction. Yeah, as long as it's, you know, I think the key is the transaction. I would have it as one bank payment, two bank payments, three bank payments. Like, just do them separately. Don't just buy six bottles of wine for 50 pound each because that could be seen as one purchase. Just have it as separate payments. Nice, all in the same day.

Dr James:

Yep, go mad, as you say and then am I right in saying, okay, no, no, that's fine. Yeah, that makes sense because you could. Yeah, you could have it's. It's basically purchases, right, you can have multiple items in each purchase, but the purchase can't exceed 50 points. Yeah, there's another way of saying that.

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