Entrepreneur’s Relief (ER) will be denied on any gain arising from the transfer of goodwill to a related company.
Dentists may be familiar with the 10% Capital Gains Tax (CGT) rate where ER was available, but under the new regime the applicable rate of CGT will be 28% for higher rate tax payers.
The ability to create a director’s loan account to shelter future profits against income tax is still there but is far more expensive.
This change alone will make incorporation not viable in many cases.
Corporation Tax relief will no longer be given on the amortisation of goodwill transferred from a connected party after the Autumn Statement.
This was potentially available where goodwill was created (or acquired) by the individual dentist or partnership after April 2002 and then transferred to a related company that they controlled.
Gift Relief (s.165) and Incorporation Relief (s.162) remain available and may be appropriate in certain circumstances.
Jon Drysdale, independent financial adviser at PFM Dental, commented on the Autumn Statement: ‘The draft legislation proposals are effective from 3 December 2014 even though the 2015 Finance Bill may not be enacted until next summer.
‘If you are in the process of incorporating your dental practice you should consult your accountant urgently to consider your options in light of these changes.’