Darling’s Capital Gains Tax Downer!

Alistair Darling’s pre-budget report has proved to be an eye opener for many small businesses. Amongst the many changes are the significant changes to the capital gains tax rules.

Previously, when a dentist wanted to sell his own practice to minimise the capital gains tax payable the business assets could qualify for business asset taper relief. This in effect helped minimise capital gains tax payable.

The new rule, is that from the April 2008, a single rate of 18 per cent will be payable for capital gains tax for any gains made in the value of a business asset.

As an example:

If you sell your business asset for £300,000 after having it for two or more years: (if you are a higher rate tax payer)

Sell today

Your capital gains tax would be,

£300,000 - 75%(taper relief for business assets) x (£300,000) = £75,000

Capital gains tax = £75,000 @40% £30,000

Sell after April 2008

The capital gains tax would be,

£ 300,000 @ 18% = £ 54,000

In this simplistic example the seller of the practice would be worse off by £24,000 – not a small amount. If you are considering selling your practice, it could prove beneficial to sell it before next April when the new rules could come into play, as you could save a significant amount of capital gains tax. Please get in touch with us if you need some help here as this is an increasingly changing area. Please note this new rule only currently applies to individuals and not companies, however, we anticipate that in due course such a rule change will arise for companies too!

Could this be good news for associates who want to buy a practice?

Such a change could also change the playing field for any associates looking to buy a practice. Up until the pre-budget report we have seen very high valuations being commanded by sellers of practices – however since we now have an April deadline of when the new capital gains tax changes will be taking place you may find a desperate seller who wants to sell before April who can then minimise their tax bill!!! Look out for such opportunities associates as this will provide you with an opportunity to perhaps negotiate harder with the vendor! Such windows of opportunity don’t come along often!

Some better news! Inheritance tax changes

Despite the downer on capital gains tax for vendors of practices, there is some positive news regarding inheritance tax (which Darling nicked from the Tories I suspect!?).

In a nutshell the individual inheritance tax allowance of £300,000 can now be transferred between civil partners or spouses, giving a combined allowance of £600,000. Some people may have planned for this already through discretionary trusts but now Darling and company have changed the rules. In addition, widows or widowers can claim the full amount retrospectively.

Again get in touch if you have any questions or need some help tax planning.

Dentistry in the line of fire – again!

If you have not had enough as yet, dentistry is in the line of fire again in the mainstream press. BDA vs the DoH – with ultimately patients unhappy with the changes. I am not going to dwell on it – but if you want to read more about what the press are saying check out http://news.bbc.co.uk/1/hi/health/7041291.stm

If you need further help in buying a practice or setting up a practice please get in touch with the team at Samera who can certainly help with your needs. Please visit www.samera.co.uk or www.settingupinpractice.com or call us on 0207 100 8788.

Free tools

If you haven't already, you can download some free financial tools to help you run your practice better. In order to download please visit www.samera.co.uk/financialtools

If you have any questions or thoughts please get in touch with us, our team is always here to help!

Best regards

Arun Mehra ACA

Managing Director

"Helping Dentists Build Better Businesses"