As advisors to a great many care homes we fully appreciate that as an owner you will be focussed on many important day to day operational issues such as occupancy, staffing and regulatory compliance to name but a few.
However it is imperative that every once in a while you stand back from the day to day problems and focus your attention on the big, long term picture, where do you want to be in say 5,10 and 20 years time?
This is an immensely important matter that needs to be discussed with your trusted advisor.
This is one of the first questions that we broach with any new prospective client and we are constantly surprised at the number of owners who tell us that “no one has asked me that before”.
What’s your strategy?
In years gone by many business owners would anticipate handing the business down to their children. This concept is now less popular, with owners now seeking to dispose of their care home businesses at a future date in order to secure their retirement.
Whether you are looking to pass the business down to the next generation or seeking a disposal two things are common to both decisions:
- Planning – you really do need to be establishing your longer term strategic plan early on and discussing this with your accountant, solicitor or trusted advisor.
- Your operating structure – are you operating your business through the structure most appropriate to your longer term strategic objective.
Over the past year or so we have met with a number of new care home operators who, upon having been asked about their longer term goals have seen the benefits of making the time to spend a few hours discussing their goals with us.
How have you structured your business?
It is evident that many of these operators were operating their businesses through a structure that did not best suit their longer term aims. Whilst there are many factors to take into account in determining the most appropriate structure one fundamental consideration is tax
Tax in this scenario could potentially cover the following:
Capital gains tax
You could be at risk of paying 28% on the sale of your property when you should ideally be paying only 10% – with high values still attaching to good quality businesses this could result in an enormous saving.
Clearly you are not looking to die, but you could face a tax rate of 40% or 20% or 0% depending upon how your business is structured – as above with high values attaching to good care homes the difference in the potential tax charge is immense.
The majority of our clients would be paying corporation tax at either the small company rate of 20% or the marginal rate of 25% – clearly 20% is preferable!
It is highly likely that you would rather pay corporation tax than income tax and national insurance at 42% or even 52% – You do have choice here.
On the whole this is a tax you ought not to be paying or at best seeking to minimise.
Stamp Duty Land Tax
With a top rate of 4% on the value of a freehold non-residential property this is potentially a sizeable tax, especially for a buyer to pay.
Your choice of tax
Some of the comments above may seem a bit” tongue in cheek” but it is indeed true that you do have a great degree of choice as to how much tax you need pay either now or at the time of your chosen exit from the business.
Both the type of tax and the rate of each tax will, in the main, be governed by the structure of your business.
Your business structure
Moving from your current structure to one that better suits your long term objectives may well require some careful and well structured tax planning and associated legal drafting.
We are very willing to discuss your longer term goals with you and assess whether or not your current business structure is appropriate. Any solutions together with a summary of the tax savings and the related cost will be discussed with you before you commit to any fees.
One thing is certain – if you are not in the right business structure to suit your longer term goals you will defiantly be paying far more tax than you should.