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Is it still worth owning your premises?

Dr John Couch thinks premises ownership for GPs is still well worthwhile – he explains why

Dr John Couch thinks premises ownership for GPs is still well worthwhile – he explains why

From some perspectives, the future prospects for GPs owning their properties seem poor. In the past there was no cash limit on funding for GP premises. This is not the case now and the current, cash-limited budget is so woefully small that funding for practice extensions and new builds is effectively zero.

The only new money available seems to be politically channelled to paying rent to private developers of new GP premises.

So will GP ownership wither away in the next 10 to 20 years?

Until recently around 50% of practices owned their premises. In the last few years, younger GPs have become averse to premises purchase with the result that the average age of property-owning GPs is increasing. As GPs retire, remaining partners are left to purchase their share and eventually a critical point is reached at which the premises are sold, either on a leaseback arrangement or in order to move to the monolithic new private development nearby, along with other local GPs.

So what are the advantages and disadvantages of property ownership? On the plus side, rent reimbursement must feature large. The NHS pays property-owning GPs a rent based on the negotiated rental value. This is as either 'notional' rent for older premises or 'cost' rent for newer builds. Notional rent can be updated every three years. For property purchasing partners this income can cover a large proportion of loan repayments and in time – on average after seven years – it can become extra profit.

Loans for property purchase also qualify for tax relief on interest payments. For most GPs this is worth a 40% reduction in payments. In addition, in the medium to long term, property values usually increase. Property-owning GPs can therefore retire with considerable nest-eggs.

Finally, property ownership allows practices to keep control of their destiny without having to defer to a landlord.On the negative side, young GPs can see ownership as a burden that ties them into a partnership. The cost may also be daunting at a time when family expenditure is often at its highest.

There is no doubt that some worry about the risk of losing money, though this rarely happens. This fear factor puts many off.

Consider the many private companies that are investing in practice premises. Are they taking a huge risk? When compared with most other areas of commerce, the answer is no. Their investment is underwritten by Government rent reimbursement. Usually 10 to 20-year leases are negotiated, further increasing security. They establish a foot in primary care, especially now that APMS pro-viders are allowed. Finally they, rather than GPs, benefit from property capital gain.

Reducing the fear factor

As GP posts, and partnerships in particular, become much more competitive the fear of property ownership should become less of an issue. There are also several safeguards that GPs can set up to reduce the fear factor.

Make sure the practice agreement has a clause clearly ensuring that an exiting partner is bought out. If you are lucky enough to have a choice, join a practice whose premises are in a good property location. Ensure that you pay for the best valuer when the rental value is being renegotiated. Try to provide a service that the PCT wants to continue to use. If you fund a new premises build yourself be prepared to settle for the same deal offered to private providers: a reduced profit is better than no profit at all.

Finally, make sure you employ good accountancy and legal advice for new builds. This can save huge amounts on VAT, loans and mixed developments.

If we allow property ownership to decline, we are accelerating the path to a salaried service. In my opinion older GPs need to remain confident and younger GPs must find the courage to invest in their own future. Private companies know it makes sense – so should we.

Dr John Couch is a GP in Ashford, Middlesex

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