Sale and leaseback of practice property
A GP partnership will own many assets including fixtures and fittings, medical equipment and sometimes the property that the practice works from. There are many advantages to this such as control over how the property is used and maintained and also if you are in the fortunate position of being in a building that grows in value, potentially receiving more for your investment when leaving the partnership than you paid when joining. However, the property can also tie up capital and if mortgages and loans are involved then monthly repayments can significantly affect cash flow. Sale and leaseback can be viewed as a way of releasing the capital and enabling the money to be utilised for other things such as personal mortgages and school fees. The property will be sold by the partnership to a third party who then immediately grants a lease back to the partnership. The use of the property will then continue under the lease arrangement with the third party often for a term of 20-25 years.
Advantages of sale and leaseback
New partners are potentially reluctant to buy into a property particularly at a time when they are starting out in their career and may have other personal liabilities such as buying their own home.
If there are existing partnership loans in place secured on the property any increase in borrowings either within the partnership or personally to buy in might be at different rates and new partners may not want to enter into such arrangements. There may be redemption penalties on the old loan arrangements that make shopping around for other competitive rates less viable. Therefore it may seem to be more attractive to an incoming partner to be part of a lease arrangement rather than purchasing a property. The main advantage for leasing premises is that the equity in the premises does not have to be funded by the partners.
Disadvantages of sale and leaseback
An incoming partner needs to be aware that all responsibilities of the partnership are jointly and severally liable, which means if they are taking on significant long term liabilities with respect to the lease and have no underlying property asset on which to secure those liabilities there is possibly a higher personal risk than if they were party to loan finance to own the building instead
When selling the property to the third party a capital gain (or loss) will crystallise. As the sale of the property is not classed as a cessation of the business then Entrepreneur’s Relief ( now known as Business Asset Disposal Relief) will not be available and capital gains will be due at the current CGT rate of 20% rather than the 10% reduced rate. If the property has increased in value since the partner purchased their share this may result in a significant amount of capital gains tax to pay.
Following leaseback, any subsequent growth in the value of the property is forgone by the partners and the third party will benefit from this.
Stamp duty land tax (SDLT) may be due on the lease and NHSE may not reimburse these costs.
The partnership will be reliant on the third party making or approving significant improvements to the property such as an extension.
The terms of the lease may also transfer the responsibility to the partnership for the repair and maintenance of the property on an ongoing basis and will no doubt include a closing dilapidations provision at the end of the lease term. NHSE are unlikely to reimburse the full amount of these costs and therefore the partnership will have to fund the difference.
Prior to sale to the third party the partnership may have benefitted from notional rent and other rental income from other businesses such as pharmacies. Once the property has been sold notional rent ceases and any third party income will be that of the landlord owner unless permission is given to sub-let rooms.
If you are considering the sale and leaseback of your property, we can help guide you through the maze of accounting and tax issues and can recommend solicitors to help with the legal aspects.
Are you considering partnership as the next step in your career as a general practitioner?
There are many reasons for making a long-term commitment to a GP practice. Getting to know your patients and their families; understanding the needs of the local population; shaping the way in which care is provided – all of these aspects of working in a partnership can be rewarding an fulfilling.
Grasping the financial and business aspects of contributing to a GP practice, however, can be daunting.
The best course of action is to tackle these head-on. This guide has been written to explain some of the key business areas you will be involved with as a partner, so you have a thorough understanding of the financial pros and cons before joining a practice.
You may have become aware of the above consultation document issued on 16 July 2020 and running until 11 October 2020. This has been issued as a result of two legal cases where younger members of certain public sector pension schemes challenged the Government about their transitional transfer into new schemes from their original arrangements. They won their case for discrimination and the Government conceded that public sector schemes should compensate these younger members.
It is proposed that the recompense will take the form of an option for members who have moved to the new schemes to elect to go back into their original scheme. This covers benefits accrued during what is called the ‘remedy period’. The remedy period runs from 1 April 2015 to 31 March 2022, which was the latest date any member received some semblance of protection from moving to the new scheme. Anyone who has transferred to the new scheme in the remedy period may choose to return to the former scheme. At 1 April 2022, all members who have not drawn their benefits or opted out will move to the 2015 pension scheme.
Two methods are being considered in the consultation document:
- Make an election shortly after the remedy period comes to an end, or
- Wait until you are ready to claim your benefits and make an election then.
You will have to sit tight about seeking advice on this. Each of the methods, although ostensibly producing the same pension benefit outcome, once a decision is made as to which scheme to be a part of in the remedy period, will potentially produce significantly different income tax and pension tax outcomes, sometimes affecting many years. Until we know which method is to be used, we cannot tell the implications.
Watch this space.
Please get in touch with David Walker, Healthcare Services Senior Tax Manager if you need support, or alternatively contact us here.
Manchester-based healthcare investment company has acquired a £4.5m care and
education provider as part of its ongoing growth strategy.
Tristone Healthcare, a
subsidiary of Tristone Capital, has acquired Southampton-based Sportfit Support
Services which offers care and education services to vulnerable young people
including those with learning disabilities and requiring supported living.
The acquisition is one of a
number planned this year as Tristone targets £35m revenues and £7.5m EBITDA in
the next 18 months through its buy, build and hold strategy.
Tristone was advised by MHA
Moore and Smalley’s Corporate Finance and Tax Advisory teams who provided
financial and taxation due diligence support alongside wider deal advisory
MHA Moore and Smalley’s
acquisition team was led by tax partner David Bennett and corporate finance
director Simon Carruthers.
Simon Carruthers said: “The
Tristone team are passionate in their plan to build a significant social care
group delivering positive social change through the alignment of commercial
returns with social impact.
“Assisting the team to shape and deliver
a transaction that will help Sportfit progress to the next level and
provide exceptional support for even more disadvantaged young people has been
“This is the second transaction in the
social care sector that our Corporate Finance team has helped deliver from
start to finish during lockdown, based on the team’s deep understanding of and
strong credentials in children’s and young person’s services in particular.”
The deal increases the
number of vulnerable young people currently supported by Tristone businesses to
Tristone founder and CEO,
Yannis Loucopoulos, said: “Sportfit is a fantastic business that perfectly
aligns with our values and helps us further deliver on our purpose of providing
safe, essential care, while enriching lives through education for vulnerable
children, young people and adults.
“It’s an excellent example
of our strategy of acquiring profitable social care businesses with a track
record of success and a strong management team.”
Notional rent is a method of reimbursement for GPs who own their own practice premises and use it for NHS approved purposes. The reimbursement incentivises the upkeep and maintenance of the practice premises and supports any lending.
It is based upon the current market rent (CMR) that the property could otherwise earn, based on notional lease terms of 15 years, as determined by the District Valuer (DV).
Assuming that there are no significant changes during that time – such as further capital investment in the premises – then the notional rent will be reviewed every 3 years.
GPs will either own the property as a partnership asset (named partners hold the title on Trust for the whole partnership) or as named owners personally outside of the partnership. If the premises are a partnership asset it is possible that the ownership ratios amongst the partners are not equal.
Accounting for the allocation of the notional rent reimbursement where there are a number of partners with differing shares of the property requires a prior share mechanism in the practice profit allocation.
There are various other matters that need to be considered with regards to the notional rent. For example, should the practice opt to let GMS-approved space within the property to other tenants such as a pharmacy, then the notional rent reimbursement will be reduced to remove the rent attaching to that area of the building. There would not be any guarantee that the practice can revert to previous notional rent arrangements should the tenant leave.
Furthermore, the notional rent assessment by the DV can be challenged by the practice. This should be done through an independent specialist medical surveyor and could result in a significant uplift.
Where the property is not a partnership asset it should not be reflected on the balance sheet of the practice accounts. Instead a separate lease should be put in place between the property owners and the tenant practice partnership, with a separate landlord’s statement of rental income and expenditure. In this case the lease is often set up to mirror the Notional Rent deemed lease terms so that the amount of rent matches the notional rent received. However, that does not always have to be the case and provided the actual lease terms are approved by the DV then the landlord will receive full reimbursement to cover the actual rent payable to the landlord.
Premises improvements grants are additional funding through the contract for one-off investments to improve, alter or extend the existing practice premises. Generally speaking, the grants are not available for expenditure on replacements and repairs of existing features or for the initial installation of certain basic systems such as air conditioning and telephone systems.
To take advantage of improvement grants, your practice must follow the procedure laid out in the NHS Premises Costs Directions. Broadly speaking, this means that having identified the areas requiring investment, the practice should review whether they meet the eligibility criteria and must bid for the funds from NHS England by completing detailed bid documentation and then undergoing the review process and obtaining written agreement from NHS England.
NHS GMS Premises Costs Direction (2013) and other contract information:
LMC Premises Improvement Grant Process:
Please get in touch with Matthew Hodgson, Healthcare Services Assistant Manager if you need support, or alternatively contact us here.
The number of eligible roles which Primary Care Networks can now obtain funding for was expanded in April 2020 from two to nine, with further expansion planned in 2021/22 as set out in chapter 1 of the Update to the GP Contract 2020/21.
The new roles include: – physician associates, health and wellbeing coaches, care coordinators, podiatrists, dieticians, occupational therapists and pharmacy technicians.
In addition to the above it has recently been announced that from 1 October 2020 nursing associates will be added to the list of eligible roles.
The updated GP contract provided entitlement to 100% reimbursement for an estimated 9,000 FTEs in 2020/21 under the Additional Roles Reimbursement Scheme (ARRS), rising to 26,000 in 2023/24. This equates to every PCN having an average of 7-8 staff funded by the ARRS in post in March 2021.
Every CCG has a responsibility to help all their PCNs recruit, supporting them to use their allocation of funding and get their share of the additional roles in place.
Where recruitment has been delayed due to the initial pandemic response, PCNs are entitled to ‘overrecruit’ for the final 6-9 months of the year (i.e. beyond the average 7- 8 staff) in order to use their full funding allocation.
NHS England have warned recently that the funding may be lost if not spent on recruiting these additional roles.
An acceleration in social prescribing link workers has also been useful during COVID to support general practice and additional funding has been directed in this area. Any PCN looking to expand the number of DES funded support workers should submit an expression of interest with NHS England by 24 August 2020.
PCNs need to recognise alongside CCG’s a structure for support, workforce planning and role design, embedding of new roles, and development of effective teams.
Employment liabilities, access to pension and VAT are all key considerations still at the forefront for the planning and structuring of PCNs.
MHA Moore and Smalley have a team of Healthcare specialist accountants who would be happy to assist your PCN.
Please get in touch with Susan Charnock, Healthcare Services Senior Client Manager if you need support, or alternatively contact us here.
MHA Moore and Smalley is proud to have supported
a Cumbria-based client in securing new investment which will help it expand its
specialist support for children.
A Wilderness Way (AWW), a provider of
specialist residential childcare and crisis intervention services, has secured
backing from BGF to support its continued investment in providing critical care
to vulnerable children.
BGF has invested for a minority stake in AWW
which has a portfolio of 20 properties across Northern England and Scotland.
Founded by Geoff Jenkinson and Clare
Houghton in 2007, AWW has established itself as a leading provider of
high-acuity, life-changing residential care for children at significant risk
from exploitation, violence, crime and abuse.
BGF’s funding will be used to develop AWW’s
unique provision of individualised care which delivers trauma-informed
therapeutic care with contextualised safeguarding to keep vulnerable young
people safe. AWW’s approach promotes the focus on developing young people’s
self-esteem and confidence through outdoor adventure activities and re-engagement
in meaningful learning through AWW’s individualised education programme.
Geoff Jenkinson, CEO of AWW, commented:
“BGF’s ethos and values are well aligned with those that we hold so dear at A
Wilderness Way, allowing us to continue to put quality of care and education of
our children at the forefront of everything that we do.
“Quality, creativity, safety and creating
opportunity for some of the most marginalised children in society is what we
have excelled in over the last 13 years, and we are confident that this
partnership and investment will allow us to develop further in accordance with
MHA Moore and Smalley’s corporate finance
and tax teams advised the shareholders of AWW on the deal.
Simon Carruthers, corporate finance director at MHA Moore and Smalley, said: “Having worked with Geoff, Clare and the team for many years, we knew their ambition, strong management structure and clear plan for growth would be a great fit for an investor like BGF. It’s been incredibly pleasing to help put this deal together and see Geoff and Clare’s and their wider management team’s hard work rewarded.
“A Wilderness Way provides strong outcomes
for children because of its commitment to the highest quality care that has
been at its heart since starting the business in 2007. The investment and
additional expertise offered by BGF will help the management team take the
business to the next level and provide that exceptional support for even more
children across the region.”
Harry Jones, investor at BGF, said: “AWW has
established itself as a truly differentiated provider that delivers exceptional
outcomes for the young people in its care.
“As a business that focuses on delivering
social purpose, we are delighted that our investment will help to mobilise
additional services to provide for the overwhelming demand for these services.”
AWW will be joined by Fiona Lowry, who has
been appointed as Non-Executive Chair. Fiona brings a wealth of experience to
the role, having founded several successful businesses in the Healthcare
sector, including The Good Care Group, a former BGF portfolio company.
As part of the BGF deal, AWW has implemented
a new organisational structure, establishing a leadership platform that can
continue to deliver services of excellence and a structure of governance that
ensures the safety and progress of children, staff and the organisation. Under
the changes, Geoff Jenkinson will remain Chief Executive and Clare Houghton
will transition to Multi-Disciplinary Team Director (MDT Director), responsible for setting the agenda in
relation to the therapy model across the organisation and promoting the best
interests of children in accordance with the statutory framework.
Robbie Burke, who has worked with AWW as a
consultant and Non-Executive Director since 2015, will take on the role of
Chief Operating Officer, to oversee quality throughout the organisation,
establishing goals for care, education, outdoor education and therapy in
partnership with senior managers.
Cheri Jenkinson, who joined the organisation
in 2017 as HR Manager will take on the role of Director of People and
Organisation. Cheri will be a member of the Executive Board and accountable for
the performance of the P and O function, as well as providing strategic counsel
on all people matters.
BGF’s investment will support the growth and
development of more services to the most vulnerable young people across the
BGF’s Pinesh Mehta led the deal and Harry Jones will join the AWW board. BGF was advised by Hill Dickinson. AWW advised Browne Jacobson.