Selling the practice?

One of the key issues, when selling the practice, centres on how best to plan tax liability, writes Jayne Clifford in an update to her February 2024 article

01 July, 2024 / professional-focus
Jane Clifford / Martin Aitken

It is never too early to consider financial planning and, while ‘younger’ principals may not place this at the top of the agenda right now, the reality is that planning at an early stage can be structured to help with current tax liabilities as well as those on retirement or sale.

Both capital gains tax (CGT) and inheritance tax (IHT) need to be considered carefully as part of the planning exercise and examined in close detail – without appropriate planning for these two very real scenarios, practice owners might find themselves or their ‘estate’ handing a blank cheque to the tax man. CGT is payable when you sell an asset, for example, premises or a dental business, and there has been an increase in the value of the asset.

Currently, CGT rates on most gains are 10 per cent for basic rate taxpayers and 20 per cent for higher rate taxpayers. Furthermore, where you sell a business asset – such as a dental practice – Business Asset Disposal Relief can reduce the tax rate to 10 per cent on the total gain.

There are exceptions: for example, gains from the sale of a residential property that does not qualify for principal private residence relief continue to be taxed at 18 or 28 per cent. CGT liabilities can be reduced by utilising the tax allowances to which you are entitled and by careful planning of your CGT position throughout your life.

If you leave it too late to consider your CGT liabilities, especially if you are planning to sell investments made many years ago, it can be a shock to realise how large the CGT liability can be. You can also offset capital gains on successful investments with losses from investments that haven’t worked out so well. Losses can also be carried forward to offset gains in future tax years and equally important is the use of your Annual Exempt Amount (AEA). See our Tax Rate Card on maco.co.uk for the current rates and allowances.

Read the full article

This is an update of an earlier article from the February issue of Scottish Dental which includes more information on using a will as a tax planning tool, setting up a trust, knowing your allowances and reliefs, and acts of benevolence.