His friend had been advised by his accountant that he should be selling 10% of his surgery building each year over a period of 10 years to avoid any capital gains tax (CGT). This advice works on the premise that the GP can use the annual CGT allowance of just over £10,000 to cover each year’s gain, and the £10,000 is not cumulative – if you don’t use it – you lose it.
Now that sounds sensible but there are two other issues to consider, what happens in tax law where there is a series of linked transactions, and the possible loss of entrepreneur relief.
If there is a series of linked transactions, HMRC will insist you pay the tax on the value of all the transactions at the time of the first disposal. The tax is due whether or not any money changes hands, for CGT purposes, the disposal takes place at the date of exchange not the date of completion.
Secondly, the effect of entrepreneur relief is to reduce the rate of CGT from 28% to 10%, but the entitlement to the relief is dependent on the GP retiring, or significantly reducing their interest in the partnership.
So this GP has to be careful. To successfully manage to dispose of his ownership of the surgery over 10 years using the annual CGT allowances, he would have to be able to prove that no transaction was linked to another. There would need to be proper contracts drawn up, and sound reasons recorded for each separate transaction. The legal costs might outweigh the tax saved, and the loss of the entrepreneur relief increases the tax payable by 2.8 times.