There are a growing number of dentists across the UK making the decision to sell their practice years ahead of their planned retirement date. Many choose to continue practising in an associate capacity and others take the opportunity to explore new career paths.
However, once the sale has been completed, how can you best use the funds you receive to maximise your returns in the medium to long-term?
Michael Copeland, an area manager for Wesleyan and a member of Practice Plan’s NHS Change Support Team, offers his six financial planning tips for life after selling your dental practice.
1) Make sure you get the right advice and take the time to fully define your objectives
Many people save without an actual end goal in mind, building up a ‘rainy day’ fund, but in reality, those who can visualise what they are saving for are likely to be more successful savers.
People should have different plans running alongside each other according to what they are saving for. If you’re saving for the short term you probably want to have your money somewhere easily accessible.
If you’re saving for the longer term, a trip of a lifetime when you retire for example, you can probably afford to lock away your money for longer and perhaps take a bit more risk.
Either way the key is to save early, save often and save smart, regularly reviewing your plans to ensure they are on track and keeping pace with your changing circumstances. It’s worth talking to a financial adviser who understands your career to help you plan over the long term.
2) Pension Planning
One investment option to be considered is pensions. Pension plans are tax-efficient medium to long-term investments which are designed to help you save for retirement. Ideally, these plans should be held for at least five years.
Contributions into a personal pension attract tax relief at the basic rate. Any additional or higher rate tax can be reclaimed through your tax return, although tax treatment may change in the future. Each year, you can benefit from tax relief on savings up to £3,600 or 100% of your annual earnings, if higher.
There are also limits to the amount you can save into your pension plans both annually and over your lifetime.
The Annual Allowance is the amount that can be saved into pensions by you, or by someone else on your behalf during the year. Any savings above this limit will be subject to a tax charge.
The Lifetime Allowance is the amount of pension savings that can build up over your lifetime without incurring a tax charge.
Following the introduction of Pension Freedoms in April 2015, there are now a wide range of ways you can take benefits from your pension plans, allowing you to use your pension savings to meet your needs in the future.
You could use the whole or part of your fund to purchase a guaranteed regular income for life, for example. Alternatively, you could take regular withdrawals from your pension pots, or lump sums as needed to supplement income, or pay for one-off expenses such as a holiday or new car. You may also be able to take up to 25% of your pension funds as a tax-free lump sum.
[blockquote cite=”Michael Copeland” type=”center”]The key is to save early, save often and save smart, regularly reviewing your plans to ensure they are on track.[/blockquote]
3) Individual Savings Account (ISA)
An Individual Savings Account (ISA) is another tax-efficient savings vehicle that can be used to save for capital growth or to provide an income. You can save up to £15,240 into cash, stocks and shares or a mix of both in a tax year. Whilst cash can be accessed immediately (although some ISA managers may impose a penalty for withdrawals at short notice) any investment into stocks and shares should be viewed as a medium to long-term investment, of at least five years, to counteract any short-term volatility in the market.
Further options for your investments include flexible savings, unit trusts and investment bonds. These are collective investment vehicles that pool your money, along with that of other savers, and invest in various assets such as stocks and shares with a view to achieving growth over the medium to long term.
4) Savings Accounts
There are a range of savings products available for regular savings, including cash ISAs, fixed and variable interest rate savings accounts. Predominantly holding your funds in cash, these maintain access to your money whilst earning modest returns and offering security for your funds.
5) Unit Trusts and OEICs
Unit trusts and Open Ended Investment Companies (OEICs) are by far the most popular investment funds. With a unit trust, a fund manager buys bonds or shares in companies on the stock market on behalf of the fund. The fund is split into units, and this is what you buy.
OEICs operate in a similar manner to unit trusts except that the fund is run as a company, and so offer shares in the company rather than units within a unit trust.
6) Investment Bonds
Investment bonds are life insurance policies where you invest a lump sum in a variety of available funds. Some investment bonds run for a fixed term, others have no set investment term, and some may offer various guarantees and options.
With so many options open to you, it is vital to get expert financial advice to assess your unique circumstances and requirements and recommend an appropriate course of action, preferably from a specialist who understands the particular career paths of dental professionals and their financial needs.
The above information does not constitute financial advice. For further information please speak to your financial adviser.
Wesleyan provides specialist financial advice and products to dentists. For more information visit www.wesleyan.co.uk