Incorporating Your Dental Business Before Capital Gains Tax Changes

Business Asset Disposal Relief now charges 18% on the first £1 million of qualifying gains, up from 10% as recently as April 2025. If you are a dental practice owner who has been putting off the incorporation decision, that rate rise is a real cost, not a theoretical one, and it is not the only lever currently moving. This post sets out where Capital Gains Tax and Business Asset Disposal Relief now stand, what incorporating a dental practice actually involves, and the specific complication dental practices face that most incorporation guidance written for other sectors ignores: the NHS contract.

We act for dental practice owners considering incorporation, on both the corporate restructuring and the wider practice sale and purchase side, and this is one of the most common conversations we have with practice principals in their forties and fifties. This post is not a substitute for a personal tax computation from your accountant, but it should give you a clear, current picture of the rules before you have that conversation.

What has actually changed on Capital Gains Tax

Two separate things have moved in the last eighteen months, and it is worth being precise about both.

General Capital Gains Tax rates for individuals now stand at 18% on gains that fall within your basic rate income tax band and 24% on gains above it, for disposals from 6 April 2026. The annual exempt amount, the slice of gains you can realise tax-free each year, is £3,000. These are the rates that would apply to a straightforward sale of dental practice goodwill or shares by an individual who does not qualify for a specific relief.

Business Asset Disposal Relief (BADR, formerly known as Entrepreneurs’ Relief) is the relief most dental practice owners actually plan around, because it applies a flat rate to the first £1 million of lifetime qualifying gains rather than the standard rates above. That rate has been rising in stages:

We are now past the 6 April 2026 change, so 18% is the rate that applies today to a qualifying disposal. To qualify, broadly, you must have owned the business (or, for a share sale, held at least 5% of shares and voting rights in your “personal company” and been an employee or director) for at least two years before disposal, and the business must be a genuine trading business. The £1 million lifetime limit is cumulative across your life, not an annual allowance, so if you have used part of it on a previous disposal, less is available now.

The practical point for dental practice owners is this: BADR at 18% is still meaningfully better than the standard 24% higher rate, but the gap has narrowed sharply since 2025, and the direction of travel over the last two Budgets has been consistently upward. Anyone weighing up incorporation now, or a future exit, should plan on the assumption that today’s rate is not guaranteed to be tomorrow’s, and build in a realistic margin rather than assuming the current 18% will still apply when they eventually sell.

Why incorporation is a CGT event in the first place

If you currently run your dental practice as a sole trader or partnership and move the business into a limited company, you are disposing of the business, including its goodwill, for tax purposes, even though economically you still own and control it (now via company shares rather than directly). This crystallises a capital gain based on the market value of the goodwill and other business assets at the point of transfer, whether or not any cash actually changes hands.

Historically, dental practice goodwill has often built up substantial value over many years of trading, particularly for practices with a strong private fee income base, so this is rarely a nominal figure. Two mechanisms exist to manage the resulting tax charge, and they work in opposite directions.

Option one: pay the gain now, using Business Asset Disposal Relief

You crystallise the gain on incorporation and pay CGT at the current BADR rate (18%, subject to your lifetime limit and the qualifying conditions above). The advantage is that your shares in the new company then have a base cost equal to their market value at incorporation, which reduces your gain (and therefore your tax) if and when you sell the company or its business in future. It also means you are paying tax at today’s known rate, rather than gambling on a rate you cannot control years down the line.

Option two: defer the gain, using Incorporation Relief

Under section 162 of the Taxation of Chargeable Gains Act 1992, if you transfer the whole of your business, including all its assets other than cash, to a company wholly or mainly in exchange for shares, the capital gain is automatically rolled over into the base cost of those shares rather than taxed immediately. No CGT is payable at the point of incorporation. The trade-off is that your shares now carry a lower base cost, so a larger gain (taxed at whatever the prevailing rules are at the time) crystallises when you eventually sell the company.

From 6 April 2026, HMRC has also tightened the administration of this relief: claimants must now make a formal claim through their Self Assessment return, setting out details of the transaction, the tax computation, and the type of business transferred, rather than the relief simply applying automatically in the background. This is a genuinely new procedural requirement and one that is easy to miss if your accountant is working from an older process.

It is possible to elect out of automatic Incorporation Relief under section 162A specifically to access BADR instead, effectively choosing to pay tax now at a known rate rather than defer it. Which option makes sense depends heavily on your personal circumstances: your current marginal tax rate, how much of your BADR lifetime limit remains available, your appetite to pay a tax bill now versus later, and your medium-term exit plans. This is a decision to make with your accountant and solicitor together, not in isolation.

The complication most incorporation guidance misses: your NHS contract

General incorporation guidance written for retailers, consultants, or trades businesses does not deal with the issue that makes dental practice incorporation genuinely different: if your practice holds an NHS General Dental Services (GDS) or Personal Dental Services (PDS) contract, that contract sits with you personally (or your existing partnership), not automatically with a new company.

GDS contracts generally prohibit assignment of the contract’s benefit outright. PDS contracts can sometimes be moved, but only with NHS England’s prior consent, and there is no guarantee that consent will be given. If you incorporate the practice’s goodwill and trading activity into a company but leave the NHS contract in your own name without securing the right approvals, you risk being in breach of the contract terms, which can put the NHS income itself, and by extension a large part of the practice’s value, at serious risk. Even where consent is obtained, the individual contract holder can remain personally liable for the company’s defaults under the contract for its full term.

This is not a reason to avoid incorporation if it makes sense for your tax position. It is a reason to treat the NHS contract position as a design question from the outset, alongside the tax planning, rather than an afterthought dealt with after the accountants have already restructured the business. In practice this usually means engaging your solicitor early to review the contract terms, approach NHS England or the relevant Integrated Care Board about consent where a PDS contract allows it, and structure the transaction so the legal steps and the tax steps land in the right order.

Corporation Tax after incorporation

Once incorporated, practice profits are taxed under Corporation Tax rather than Income Tax. The current rates are a 19% small profits rate for companies with profits of £50,000 or less, a 25% main rate for profits over £250,000, and marginal relief tapering the effective rate for profits in between. For many practices, particularly those retaining profit in the company rather than extracting it all as salary or dividends, this can produce a lower overall tax position than sole trader or partnership taxation, but the comparison depends on how much profit you actually need to draw out personally, since dividends and salary from the company are then taxed again in your hands.

Timing the decision

Because BADR has moved three times in under two years and the direction has been consistently upward, the temptation is to treat every year as “the last good year” to act. That pressure is real, but a rushed incorporation done purely to catch a rate before it changes again, without properly addressing the NHS contract position, goodwill valuation, and the choice between paying now or deferring, tends to create problems that outweigh the tax saved. The right approach is to start the conversation with your accountant and solicitor now, get a proper valuation and computation done, and make a considered decision on a realistic timescale, rather than a last-minute one driven by a rate change alone.

If incorporation is part of a wider plan to eventually sell the practice, it is worth reading this alongside our guide on dental practice valuations, since the goodwill figure used for your incorporation gain and the figure a buyer will eventually pay are calculated on related but not identical bases, and getting an early, defensible valuation makes both processes more straightforward.

What this means for you

If you are considering incorporating your dental practice, the current 18% BADR rate is still worth having, but the window to act on any given rate is not open-ended, and it should never be the only reason you incorporate. Get a proper valuation, understand whether Incorporation Relief or BADR (or a mix) suits your position, and make sure your NHS contract is dealt with as part of the same piece of work, not separately.

Our corporate and healthcare teams work together on exactly this kind of transaction, covering the legal restructuring, the NHS contract position, and coordinating with your accountant on the tax mechanics. If you are weighing up incorporation or a wider sale, get in touch with our corporate team or call us on +44 207 566 1188, or email info@gurvelegal.com. If a full sale of the practice, rather than incorporation, is what you are actually planning, our guide to buying a dental practice covers the process from the other side of the transaction.