If you happen to own the property in which your veterinary practice operates, you have a number of different options with the property when it comes to selling. For example, you may want to sell the property as a freehold to the buyer and therefore completely ending your contractual ownership of the property. Instead you may decide that you would rather lease the property to the buyers in order to receive an ongoing rental income as well as, hopefully, benefiting from any appreciation in the value of the freehold.
It is important to properly assess the pros and cons of each of your options to ensure that you make the best decision for you.
Selling the Freehold or Leasehold
If you decide to sell your freehold or long leasehold property, thereby bringing to an end any obligations you might have in relation to it either as a property owner or as a future landlord, you will receive a lump sum of money from the sale that you can do whatever you want with (provided any borrowing against the property is first repaid) which includes investing it or paying it into your pension fund. What’s more, depending on market conditions when you sell, you may avoid any depreciation in the property value if the market takes a turn for the worse in the future.
The downside to selling your freehold property includes your potential liability for Capital Gains Tax on the sum you receive for it. You will also forgo any ongoing rental income from the property, meaning that the lump sum you receive will be the only money you make from the sale (these are areas we strongly suggest you speak to your accountant about). You must also remember that there is every chance that the property market will change and your property could end up being worth significantly more after you’ve sold it which your buyer will benefit from.
Leasing the Property
If you’d rather keep hold of your property you can choose to lease it to your buyers. This will mean that you will retain ownership of the property but allow the buyers to occupy it in return for an agreed rental payment. Naturally, this is one of the biggest benefits of choosing to lease your property as you will receive an ongoing rental income that could prove to be profitable in the long term. You will also be able to benefit if the property goes up in value in the future meaning that the gains will remain yours even if you haven’t set foot in the property yourself for years. Additionally, if you retain ownership of the property you may be able to release equity from its worth thereby allowing you to access a lump sum of money if you should need it.
Again, leasing your property also has its downsides. If you decide to lease your property you will have certain obligations in relation to it and your tenants under the lease that is entered into. You will need to ensure that rental payments, together with any other sums due under the lease, are made by the Tenant on time. You may also be responsible for any maintenance or upkeep on the property depending on your agreement with the tenant which, if you are planning to retire for example, may be an unwanted obligation. Such considerations should therefore be agreed with the tenant at the outset before the lease is entered into. Other considerations include the length of the lease, when the rent should be paid (for example monthly or every 3 months), who is responsible for any damage and subsequent repairs to the property and whether you and/or the tenants can end or extend the lease early.
Transferring the Property to your Pension Fund
A third option may be to transfer your property to your pension fund and the pension fund leasing it to the buyer. By transferring your property to your pension fund you will be able to enjoy a tax-free rental income whilst, depending on your arrangement with the pension fund provider, the landlord obligations will be taken care of by the pension provider. Again, we recommend that you speak with your accountant and pension provider to ascertain the financial advantages and disadvantages of choosing this option.
Selling your veterinary practice and how you deal with your freehold or long leasehold property isn’t a simple task. With so many options, all with their own advantages and disadvantages, you must make sure you consider your options carefully to ensure that your future interests are protected in the long term. As always, your first step should be to seek out the advice of the experts.
For more information, visit the Goodman Grant website at vets.goodmangrant.co.uk or call us on:
Leeds office: 0113 834 3705
London office: 0203 114 2133
Liverpool office: 0151 707 0090