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Making the most of a practice sale
Are you aware that dental practice owners may have a choice between paying tax at 10% or at 28%, asks NASDA member, Andy Hodgetts? When it comes to selling, practice-owners who qualify for Entrepreneurs Relief (ER) will pay an effective Capital Gains Tax rate of 10%, compared with the standard rate of 28%.
A Chartered Accountant and a Director of specialist dental accountants Herbert Parnell, Andy explains that in order to pay the lower rate of tax, you need to ensure you can qualify for ER. If you do, then you can use this entitlement to build a strategy for the disposal of the practice. “This remains one of the most important items in planning the sale of your practice, and other assets linked to it.”
Andy continues: “ER can cover up to £10 million in gains over a lifetime, in other words a maximum of £1,800,000 in tax savings, although most dentists won’t get anywhere near that level. Practices which are unincorporated are highly likely to qualify for ER while incorporated dental practices are much more likely to encounter complications. “
He explains that incorporation provides many opportunities and benefits but when it comes to selling the practice, there can be challenges. For instance:
- If shares have been gifted to a spouse to make use of an additional entitlement to ER
- When an incorporated practice sells assets rather than shares in the company
Even for more straightforward unincorporated sales, there are still potential pitfalls, such as
- When practice premises are not sold at the same time as the practice
- When a practice is not sold solely for cash but involves earn outs or loan notes
In these instances, advises Andy, planning the transfer of the practice to a new owner shouldn’t be left to the last moment. Plenty of time must be allowed for any complications to be resolved and to enable a smooth sale, a lower rate of tax, and higher profit.
Andrew Hodgetts is a director of Herbert Parnell. The firm is a member of NASDA, an association of accountants and lawyers specialising in the affairs of dentists. He can be contacted on 01483 485444, or find a NASDA member.
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