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Q&A: Buying into a care home

Accountants Paul Congdon and Nick Holmes offer advice to GPs about investing in a care home

On the face of it care homes represent an area of primary care where there is insufficient funding. Yet some GPs have bought into the care home market by securing private contracts with the owners. Some, more entrepreneurial GPs have bought the actual care home business itself.

The care home industry has had a rough time over the last five or six years. Many operations have failed from the largest, Four Seasons, down to the smallest one-home owners. The economic climate, the availability of finance, the changes to the regulator (from Social Care Inspection to the CQC) and the regulatory changes that need to be adhered to, have all contributed.

Those that are still trading have become, in the main, better quality, more streamlined operations, and the vendors of such homes have now become better educated in their sale price expectations. Now the market is improving decent establishments are starting to come onto the market again.

With GP profits coming under more pressure and soon to be scrutinised more publicly, care homes could be just the beginning for the new commercially minded and entrepreneurial GP.

The following Q&As offer some advice to GPs who have been asked to invest in their local care home.

Q. Can GPs buy care homes?

There are no restrictions on who can buy and/or run a care home, subject to the owners successfully applying for registration with the CQC.

Q. How can the care home owners become the NHS providers to the care home?

The GP practice that provides NHS services to a care home is chosen by the trader. We understand that there are no conflict of interest issues if the trader (as a private business) awards the contract to the GP practice whose partners are investors in the business.

Q. Can the owners run the care home privately? And can I set up a partnership to buy a home with anyone outside my GP partnership?

Yes, the care home can be run privately but be cautious here, as a care home has to be run by the person/s or entity that is registered with the CQC. Any change in ownership could require a new application for CQC registration.

It is therefore important for GPs to establish from the start if they are buying shares of a company, buying the trade or just becoming owners of the premises. Anyone can be included in a partnership buying the care home but CQC registration will still need to be addressed.

Q. How can GPs raise the capital to buy a care home?

The raising of capital is the same as for any other prospective purchaser of a care home. The starting point is to contact your own business banking manager who will put you in touch with the healthcare team. However, there are many commercial lenders who would be happy to support this category of business provided you have a business plan and cash flow forecast.

Q. What loans should I take out or avoid if I was planning to buy a care home?

Depending on the rationale for purchasing a care home certain loans may or may not be more attractive. You might be looking to extract a regular income or use surplus profits to pay off debt incurred upon purchase.

You might be planning to reinvest in or extend the property, or you may simply be looking for capital growth.

You will also need to consider the entity under which the loan will be taken (personal names, a partnership or a company), the ages of those involved and potential profits.

Ordinarily, banks will look for between 20% and 30% of the purchase price to be invested by the purchaser out of other cash resources or unrelated debt. Don’t forget funds required for working capital - the income won’t be there on day one.

Q. What VAT and tax liabilities should I look out for?

Income received by a CQC-registered care home is exempt from VAT.  When looking at the purchase of a care home it is therefore every other tax you need to be wary of. Stamp duty land tax is likely to be your first hurdle, and the rate will depend on whether you are buying shares, ie the care home is already inside a limited company (0.5%) or, if not, on the value of the deal (1% - 5%).

There will be employment taxes for the staff, personal tax if you purchase the care home in personal names, capital allowances which can be claimed on purchase/set up, corporation tax if you involve a limited company and for the future - capital gains and inheritance tax planning. It is essential that you consider these last two with your accountant at the time of purchase.

Q. Who do we need to consult with when we consider buying a care home?

Speak to your accountant/business advisor for tax, structure and business plan guidance, your bankers for finance, your IFA for availability of funds and your solicitor for the purchase agreement. They will be able to guide you through the sales documentation jargon, the validity of valuations, the options for finance, the set-up of the purchase, and of course the due diligence required in proving the existing financial and regulatory performance of the care home you are looking to invest in.

Paul Congdon is a senior manager, and Nick Holmes a partner, at Darnells Healthcare, a member of the Association of Independent Specialist Medical Accountants

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