Entrepreneur’s Relief (ER) can reduce the CGT payable from 28 per cent to 10 per cent.
Heidi Marshall, a partner in specialist dental accountants Dodd and Co and a member of NASDAL’s main committee, said: “Dental practices with incorporation plans on the table will be hugely frustrated by this announcement as there are no transitional provisions. The new measure has been introduced with immediate effect.”
However, Entrepreneurs Relief (ER) is still available when a dental practice is sold to a third party and there may be some select practices which can still benefit from incorporating. Those who are interested should discuss with their NASDAL accountant.
Heidi continued: “Alongside the surprise measure denying ER on disposals of goodwill to related companies, the Chancellor also introduced a restriction on Corporation Tax deductions for goodwill acquired from a related party on incorporation. The restriction applies to transfers on or after December 3 2014. Companies already receiving relief for goodwill recognised on incorporation will not be affected.”
Since 2006, when the General Dental Council changed its rules to allow dental practices to incorporate, around 10 per cent of dentists went down the incorporation route. For many dentists, this was not going to be appropriate but for those who did go down this route, one of the major tax benefits to incorporating your dental practice was the ability to "sell" your goodwill to the new company and claim entrepreneurs relief (ER). You had to pay the tax upfront, but this outlay was soon recouped; companies pay corporation tax at 20 per cent whereas individuals pay income tax at up to 45 per cent.
Heidi said: “These change in tax legislation coupled with the onerous contract clauses being insisted upon by NHS England for incorporations will no doubt mean that there is a significant reduction in dental incorporations going forward.”
Nick Ledingham, NASDAL chairman said: “Our accountants and lawyers will be working hard to see if there is a way round these changes to the legislation and identify other tax planning opportunities to benefit dentists.”