SUCCESSION PLANNING: FINANCIAL & TAX IMPACT OF GP PREMISES CHOICES

Premises decisions - whether retaining the freehold, completing a sale-and-leaseback, or allowing a retired partner to retain a share - create significant financial, legal and tax consequences for both retiring and continuing partners. Early planning is essential to protect partner outcomes and ensure a smooth transition.

The most common approach when there is a retiring partner is for the surgery property to remain within the partnership. This could be with the remaining partners collectively buying the retiring partner’s share or a new partner.

In these circumstances the partnership needs to consider a valuation of the property, what existing property loans are in place, and how the difference (being the property capital or equity) will be funded. There will be a number of f inancing options and the impact on the continuing partners profits, drawings and tax need to be carefully planned and understood.

In most cases when the property stays within the partnership there will be no stamp duty to pay, but the retiring partner will have capital gains tax to pay on any increase in the property value at the time of leaving compared to the cost they bought in at. 

An alternative option is for all of the partners to sell their share of the property to an investor and then lease the property back. With approval, the NHS will reimburse this rent, and this reimbursement will replace the notional rent paid when the property was owned by the partners. 

This can release capital tied up in the building for all partners, and mean that new partners do not have a big property buy in, but does create a long term financial commitment for the continuing partners.

The terms of the new lease are key so that continuing partners understand their obligations, restrictions, service charges and exposure to dilapidations costs on exit. 

Stamp duty land tax might be payable with a sale and leaseback and capital gains tax will be payable by all of the partners on any property value uplift and this is likely to be different for each partner.

Allowing a retiring partner to remain a co-owner might be considered. This might solve a short term succession gap or be considered a longer term solution and investment for the retired partner. 

Partnerships need to consider whether a lease is needed with the retired partner and decide how the notional rent and property related costs will be shared to avoid disputes down the road. The practicalities of conflicting interests and obtaining agreement and signatures needs careful consideration.

There is a risk that Stamp duty land tax might be payable at the time of the partner leaving and at the time the partner sells their share back to the partnership. Capital gains tax will not be payable by the retiring partner until the share of the property is sold, but if the property is kept for too long this could increase the rate of capital gains tax payable.

For retiring partners, understanding the capital amount to be paid, the timing of that payment, any capital gains tax owed and when this is payable is key.

For continuing partners, how to finance any buy out and considering the ongoing cost and impact on continuing profits, drawings and tax are essential, as well as understanding whether there is any liability to stamp duty land tax and/or capital gains tax.

Premises decisions significantly impact partner retirement outcomes and long-term partnership stability. Early planning reduces disputes, delays and unexpected tax burdens. Always seek advice from a specialist surveyor, solicitor and accountant. 

For more detail, please watch our webinar with BW Surveyors and Porter Dodson, which expands on these options. https://youtu.be/gxt3F03qlkk