How to mitigate stamp duty/stamp duty land tax liability when purchasing a care home

Care homes are usually operated through limited companies. Care homes run by limited companies can be purchased either by way of a share purchase i.e. a purchase of the company itself, or by way of a purchase of the business and assets of the company (known as an asset purchase).

Both methods have their general advantages and disadvantages and a number of factors should be considered including tax, liability, timescales, who is buying etc., but sometimes the choice between these two purchase options will be driven by the amount of stamp duty or stamp duty land tax (SDLT) that is deemed payable by the purchaser.

Purchasing a care home by way of a share purchase

This entails purchasing the shares in the company running the care home, and therefore the whole of the company - including its history, employees, contracts and potential legal, financial and tax liabilities - is being sold by the seller.

If a deal is structured this way, then the purchaser will usually pay stamp duty at a rate of 0.5% on the acquisition of the shares. Stamp duty is a tax charged on for example securities, such as shares, to HMRC. However, the share purchase method also comes with greater liability and risk for the purchaser and the transaction may be more complex and take more time due to the level of due diligence required and thus more expensive. The benefit of in-depth pre-purchase due diligence allows the buyer to determine any issues and liabilities from the start of the process.

Purchasing a care home by way of an asset purchase

If an asset purchase structure is chosen to purchase a care home, then the purchaser will only be purchasing the assets in the company (potentially the property where the care home is located), but the remainder of the company - including the potential liability in respect of it - remains with the seller. An asset purchase structure, allows the purchaser the flexibility to be selective and to cherry pick which assets they wish to purchase and those they wish to leave behind with the seller, thereby limiting the due diligence required. An asset purchase is usually a quicker process than a share purchase.

An asset purchase is likely to result in a higher SDLT amount, in comparison to the payable stamp duty on a share purchase. SDLT is charged on the part of the consideration allocated to land/property and this can often be the most valuable asset of the business. Any SDLT which is paid is added of the base cost of the commercial property, reducing any Capital Gains Tax gain or Corporation Tax gain if the property is resold in the future.

The current SDLT rates in England are apportioned as follows:

In conclusion

You should always seek legal advice as well as tax and accountancy advice when considering the way in which you want to purchase a care home. A solicitor should be able to work with your other professional advisers to guide you on how best to structure the purchase in line with your personal preference and provide further advice on factors such as stamp duty and SDLT.

For more information contact Jenny Burke in our Corporate department or Helen Marsh in our Commercial Property department. Alternatively send any question through to Forbes Solicitors via our online Contact Form.