Planning for the Future: Retirement, Succession and Inheritance for Dentists

Most dentists spend the majority of their careers building a practice and considerably less time planning what happens at the end. The financial decisions made in the final five to ten years before retirement or exit have a bigger impact on the eventual outcome than almost anything done earlier. Starting to think about this earlier than feels immediately necessary is almost always worth it.

This article covers retirement, succession and Inheritance Tax specifically. For the full picture across tax, payroll and compliance read our full guide: Dental Accounting and Tax, A Complete Guide

What this article covers

• How the NHS Pension Scheme works for dentists and why the section you belong to matters.
• The lifetime allowance abolition in April 2024 and what dentists need to update in their planning.
• Private pensions alongside NHS pension: why most dentists benefit from both.
• Succession options: sale, family transfer, and management buyout.
• Inheritance Tax and Business Property Relief: what it covers and what can lose it.

An important boundary: what accountants do and do not advise on

Natasha Gnanapragasam, Director of Operations, Accountancy and Tax at Samera, on where accounting advice ends and regulated financial advice begins:

“Pension is something we don’t advise on directly, we’re not regulated to advise on pension schemes. What we can tell clients is what allowance they can utilise within the year, what the HMRC allowance is, and what tax charges might apply if they go over it. Beyond that, it is not within our scope. For actual pension scheme advice, which scheme, what level to contribute, how to structure retirement income, clients need a regulated financial adviser who specialises in this area.”

Natasha Gnanapragasam
Director of Operations

With that boundary clear, this article covers the tax and planning aspects of retirement, succession, and Inheritance Tax that fall within the accounting picture.

The NHS Pension Scheme

For dentists who have carried out NHS work, the NHS Pension Scheme is one of the most financially valuable assets they will accumulate over a career. It is a defined benefit scheme: income in retirement is based on years of service and pensionable earnings rather than on the performance of an investment fund. That predictability and protection is something private pensions cannot replicate.

The three sections

• 1995 section. Final salary scheme with a normal pension age of 60. The most generous in terms of accrual rate. Closed to new entrants but still active for existing members.
• 2008 section. Career average scheme with a normal pension age of 65. Less generous accrual than the 1995 section.
• 2015 section. Career average scheme with a normal pension age tied to state pension age. Applies to most dentists who joined after April 2015, and to some existing members following the 2022 McCloud remedy.

Many longer-serving NHS dentists have benefits accrued across more than one section. Understanding which section your benefits sit in, and how they have built up across sections, is the starting point for any meaningful retirement planning.

NHS Pension Scheme: NHSBSA

The annual allowance challenge for higher earners

For higher-earning dentists, the pension annual allowance creates a specific planning challenge. The NHS pension is a defined benefit scheme, so each year’s accrual is measured as a notional increase in pot value rather than as a cash contribution. For some senior dentists that notional accrual can exceed the annual allowance and create an unexpected tax charge. This requires careful planning around private contributions, scheme pays elections, and sometimes deliberate management of NHS pensionable income. Specialist advice is important here rather than optional.

Pension annual allowance: gov.uk

The lifetime allowance abolition: what changed in April 2024

The pension lifetime allowance was abolished from April 2024. For many dentists this is genuinely significant news that has not been well communicated. A meaningful number of practitioners are still operating pension strategies that were designed specifically to avoid a limit that no longer exists.

What the lifetime allowance was

The lifetime allowance set a cap on the total value of pension savings a person could accumulate across all schemes before additional tax charges applied. It was a real constraint for senior dentists with long NHS careers and meaningful private pension savings alongside them. Many were advised specifically to stop contributing to private pensions to avoid breaching the cap.

What changed

The lifetime allowance was removed entirely from April 2024. There is no longer any limit on total lifetime pension savings. The annual allowance, which limits how much you can contribute in a single year and still receive full tax relief, remains in place. But the lifetime ceiling is gone.

What dentists need to do now

If you or your financial adviser made decisions to limit pension contributions specifically because of lifetime allowance concerns, those decisions should be revisited. Some dentists stopped private pension contributions years ago to stay below the cap. With the cap gone, the tax efficiency of pension contributions is restored for those who were previously constrained. The interaction with the annual allowance still needs careful management, particularly for NHS pension members where defined benefit accrual can itself consume a significant portion of the limit. But the reason for holding back on pension saving because of the lifetime allowance no longer exists.

If you were advised to limit pension contributions because of the lifetime allowance, review that advice now

The lifetime allowance was abolished in April 2024. Strategies built around avoiding it may no longer serve your best financial interests. A regulated financial adviser who understands the NHS pension and the current rules can model what is now possible.

Lifetime allowance abolition: HMRC guidance

Private pensions alongside NHS pension

In our experience, most dentists benefit from holding some private pension savings alongside their NHS pension rather than relying on the NHS scheme alone. Private pensions provide additional retirement income, more flexibility in when and how income is drawn, and a vehicle for tax-efficient contributions in high-earning years. The right balance depends on your career stage, income level, and how close retirement actually is.

The practice as a retirement asset

For practice owners, the practice itself is typically the largest single asset and the intended primary source of retirement funding. This makes the eventual sale or transfer, and the tax efficiency of that process, central to retirement planning rather than separate from it. Dentists who treat the practice sale and pension planning as two completely separate conversations often find the combined outcome is less efficient than it could have been with integrated planning from the start.

This ties directly into the wider tax picture covered in our guide to taxes for dental practice owners.

Succession: what happens to the practice

The main options

• Sale to an external buyer. The most straightforward clean exit. Price achieved depends heavily on EBITDA quality, NHS contract value, staff retention, and how well the practice has been prepared for sale. Two to three years of preparation typically produces a significantly better outcome than selling reactively.
• Sale to existing associates or a management team. Preserves practice culture and continuity. May require vendor financing or phased payments if the team cannot fund the full purchase price immediately.
• Transfer to family. Has Inheritance Tax implications and may trigger Capital Gains Tax. Holdover relief and Business Property Relief can both be relevant but need to be planned carefully rather than assumed.
• Phased retirement. Reducing clinical hours progressively while retaining ownership, bringing in an associate or partner to manage operations, and selling later. Requires clear legal documentation and a defined exit point to avoid disputes.

Preparing for a good sale outcome

Practices that achieve the best sale outcomes are those that have been deliberately prepared over two to three years. Key preparation steps:

• Clean, consistent accounts that clearly show EBITDA without requiring extensive explanation to a buyer.
• BADR eligibility confirmed and qualifying conditions maintained.
• NHS contract arrangements in good standing and transferable.
• Any outstanding compliance issues resolved before a buyer sees them.
• Key staff contracts and notice periods properly documented.

Getting this preparation wrong is one of the more costly mistakes dental practices make, covered in our guide to accounting and tax mistakes.

Inheritance Tax and Business Property Relief

For practice owners, Inheritance Tax planning is one of the most important and most commonly overlooked aspects of long-term financial planning. A practice built up over decades can represent a very significant estate asset, and without planning a substantial portion of its value could pass to HMRC rather than to the people it was intended for.

Business Property Relief

Business Property Relief can substantially reduce Inheritance Tax on qualifying business assets. For most dental practice owners this means shares in a qualifying trading company can pass on death or as a lifetime gift with significant Inheritance Tax relief, provided the conditions are met. The rules around how much relief applies have changed recently, so the exact position needs confirming with your accountant rather than being assumed:

• The asset must be relevant business property, specifically shares in an unlisted trading company.
• The company must be predominantly trading rather than holding investments.
• The shares must have been held for at least two years before the transfer.

BPR can be lost or reduced if the company holds significant non-trading assets. Investment property, substantial cash reserves beyond operational needs, and non-trading subsidiaries are the most common ways this happens. Large retained profits sitting as cash in the company is one of the most frequent inadvertent causes. Review qualifying status regularly, particularly as the practice changes.

Business Property Relief: gov.uk

Lifetime gifting and the seven-year rule

Gifts to individuals are potentially exempt from Inheritance Tax if the donor survives seven years from the date of the gift. Gifts made within the final seven years remain subject to IHT, but on a tapering basis from year three onwards. Holdover relief may allow Capital Gains Tax to be deferred on gifts of company shares, meaning the gain is passed to the recipient rather than triggered immediately.

Wills and estate planning

A properly drafted will is the foundation of any IHT plan for a practice owner. It needs to address who inherits practice shares, whether BPR will be available on those assets as structured, how the practice continues to operate if the owner dies unexpectedly, and whether life assurance is in place to cover any IHT liability that cannot otherwise be mitigated.

Planning ahead is what actually changes the outcome

The pattern running through all of this is the same one: pension strategy, succession, and Inheritance Tax all reward decisions made years before they’re needed, not the year they become urgent. A practice prepared two to three years ahead of sale performs differently to one sold reactively. A will that accounts for Business Property Relief protects value that an outdated one doesn’t. Pension contributions that were paused for the wrong reason can simply be restarted, but only once someone notices they were paused for a reason that no longer applies.

None of this replaces regulated financial advice on pensions, or legal advice on wills and estate structuring. What it does is give you the tax and planning picture accountants are positioned to see, so those conversations with the right specialist start from an informed position rather than a blank one.

The five to ten years before retirement or exit carry more weight than people expect. Starting earlier than feels necessary is, consistently, the better call.

Future Planning: FAQs

Glossary

• Defined benefit scheme – A pension scheme where retirement income is calculated from years of service and salary, rather than from the performance of an investment fund. The NHS Pension Scheme is a defined benefit scheme.
• Annual allowance – The limit on how much can be added to a pension in a single year while still receiving full tax relief. Unlike the lifetime allowance, this remains in place.
• Lifetime allowance – The former cap on total pension savings across all schemes, abolished from April 2024.
• Scheme pays election – An arrangement allowing an annual allowance tax charge to be paid directly from pension scheme funds rather than personally, often used by higher-earning NHS pension members.
• McCloud remedy – The 2022 correction addressing age discrimination in how some NHS Pension Scheme members were moved between sections, affecting which section certain benefits sit in.
• BADR (Business Asset Disposal Relief) – A relief that reduces the Capital Gains Tax rate on qualifying business disposals, including practice sales.
• Business Property Relief (BPR) – Inheritance Tax relief on qualifying business assets, including shares in a trading dental company.
• Holdover relief – A relief allowing Capital Gains Tax on a gift of company shares to be deferred, passing the gain to the recipient rather than triggering it immediately.
• Seven-year rule – The Inheritance Tax rule under which gifts to individuals fall outside the estate if the donor survives seven years, with tapering relief from year three.
• EBITDA – Earnings before interest, tax, depreciation and amortisation, the standard measure used to value a dental practice for sale.

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