Tax Planning for the Future of your Nursing Home

There has been a lot of change in the last ten years to the tax environment in which nursing homes owners and managers operate their businesses.  Such change has encouraged, if not forced, some nursing home business owners etc. to restructure their business models for a number of reasons including to take account of cash flow requirements for tax cost and debt funding. Many nursing home businesses have successfully navigated their way through debt and business restructuring transactions over the last number of years to position for stability and potential future growth. Cleary understanding the tax implications attaching to any proposed course of action is a critical element to putting a business restructuring plan in to place. Financial modeling in a business restructuring scenario needs to factor in any tax costs that may arise and that require funding. This could include transaction taxes, e.g. capital gains tax, stamp duty and VAT as well as taxes on operating profits, whether this be income tax or corporation tax.

I continue to see an ongoing requirement for business restructuring planning in the nursing home sector, that requires a tax based analysis, in areas such as investor based exits from nursing home property tax incentive schemes, nursing homes owned and operated in a sole trade / partnership ownership structure with significant debt and/or looking to expand and raise debt to finance for such expansion, succession planning, preparing a nursing home business for future sale / expansion etc.

A key aspect of any tax based analysis in a business restructuring plan involves the nursing home building. The nursing home business is capital intensive in terms of the investment required to operate in a highly regulated environment. The investment required can include the cost of a new building, refurbishment of existing building, extension of existing building and there are also the material annual costs that can be incurred in the maintenance and repair of the building.

The capital costs associated with the development, refurbishment etc. of nursing home buildings can be substantial. In the past these costs would have enjoyed the benefit of what were referred to as  industrial buildings capital allowances, in effect an allowance that could be used to reduce taxable profits.  However the capital costs associated with constructing, extending and/or refurbishing a building, in use as a registered nursing home for the most part no longer qualify for such capital allowances and have not done so for some time now. It is worth noting that certain other capital intensive type business sectors continue to enjoy the availability of industrial buildings capital allowances on an extended (25 years) as opposed to an accelerated (7 years) basis – no such provision was however made for nursing home buildings. In a business sector where our aging population statistics would indicate a need to encourage expansion in this sector this may be an area that needs some level of attention. All is not fully lost however and in terms of development, refurbishment and expansion, opportunities do still exist to maximise the cost qualifying for tax relief under other capital allowance headings, i.e. plant and machinery.

It would also be advised that the day to day tax compliance obligations of a nursing home business would subjected to regular tax health checks with any appropriate actions taken.