The autumn budget landed with a quieter bang than some anticipated, with many businesses expecting the new government to introduce aggressive changes and sterling shocks. Whilst changes were made, many weren’t too dramatic. As the financial world adjusts following the October announcement, dental practice owners need to be financially prepared for the coming changes, big and small.
One notable change to be better informed about is the increase in capital gains tax (CGT). This affects the income from a sale. There has been some outcry: farmers, such as those who have sold land for public transport connections, will now receive less after the change to CGT. For dental practice owners about to sell or looking to sell in the next few years, it is essential to be familiar with the new rules to maximise the profits from a sale.
CGT change explained
CGT is a tax placed on the profits of a sale for something that has increased in value since being originally bought. The gain is what is taxed, rather than the full amount of money received. For instance, if you bought a practice for £500k and sold it years later for £2m, the £1.5m increase is what is taxed. The change affects individuals, trustees and personal representatives who pay CGT.
Whilst the increase in CGT looks modest at four per cent, it can make a big impact in net sale proceeds. For higher or additional rate taxpayers – those over the £50,270 threshold – the CGT change has been enacted from October 30, 2024. This means after allowances and reliefs individuals will pay: 24 per cent on gains from residential property 28 per cent on gains from carried interest 24 per cent on gains from other chargeable assets
The previous rate was 20 per cent on gains made from other chargeable assets, such as dental practices, up to October 29, 2024.
In contrast, for basic rate taxpayers in the £12,751 to £50,270 income bracket, the rate paid depends on the size of the gain, the income and whether the gain is from assets or residential property. Trustees and personal representatives have different rates too, with both paying 24 per cent on chargeable assets, up from the previous 20 per cent.
Those affected by CGT for the 2024-2025 tax year must identify any gains made before and after 30 October so that the correct rate of pay can be determined when filing a tax return. For contracts entered into before 30 October 2024 but completed after that date, there are special provisions for the main rate changes. For contracts eligible for relief, the Business Asset Disposal Relief (BADR) rates change on April 6, to 14 per cent whilst Investors’ Relief allowances dropped to £1m from £10m on October 30.
Effects of the change
For those looking to sell their dental practice, the four per cent increase in CGT might be a concern. The difference between 20 per cent and 24 per cent means that, for example, an extra £40k will be paid on top of the previous amount for every £1m of value for the dental practice. This cuts into the profits from selling.
A necessary evil?
The changing tax rate is estimated to impact 264,000 individuals in the 2025-2026 tax year, with 45 to 74-year-olds comprising 65 per cent of this demographic. The government hopes that this package of changes will raise revenue while maintaining the internationally competitive UK tax system. The rise in CGT is expected to generate vast amounts to the exchequer; for the 2025-2026 tax year, the rise is set to add £1.44bn, a considerable increase.
Selling a dental practice is a complex prospect, with many factors to consider. The changes in CGT were inevitable and can be costly, but with the right support dental practice owners can push their practice to reach its highest potential for a superior profit margin.
For more information call 01788 545 900 or visit www.dentalelite.co.uk