One of the first big financial decisions you face as a dental practice owner is whether to buy the freehold or lease the premises. The choice affects your balance sheet, your tax position, your NHS contract security, and your eventual exit. There is no universal right answer. The right answer depends on your cash position, your attitude to property risk, and how you plan to sell the practice later.
This article compares freehold and leasehold dental practice premises across the factors that matter most to UK dentists: capital outlay, tax relief, borrowing capacity, NHS contract implications, and exit strategy. It uses worked examples with real figures for the 2025/26 tax year.
What Does Freehold Mean for a Dental Practice?
Freehold means you own the building and the land it sits on outright. You are responsible for all maintenance, structural repairs, insurance, and compliance with building regulations. You also benefit from any capital appreciation when you sell.
For a dental practice, buying the freehold typically means purchasing the property alongside the practice goodwill and equipment in a single transaction, or buying the property separately if you already own the practice as a going concern.
Typical freehold purchase costs (2025/26 example):
- Practice purchase price: £800,000 (60% goodwill, 30% premises, 10% equipment)
- Premises element: £240,000
- Stamp Duty Land Tax (SDLT) on premises: approximately £2,400 (assuming mixed-use relief applies)
- Legal fees: £3,000-£5,000
- Survey and valuation: £2,000-£4,000
- Total upfront cash needed for premises: £247,000-£249,000
You can finance the premises element with a commercial mortgage. Typical terms for dental practice premises in 2025/26: 60-70% loan-to-value, 3.5-5.5% interest rate, 15-25 year term. You would need a deposit of roughly £72,000-£96,000 on a £240,000 premises value.
What Does Leasehold Mean for a Dental Practice?
Leasehold means you occupy the premises under a lease agreement with a landlord (the freeholder). You pay rent, service charges, and typically contribute to building insurance and structural repairs through a service charge or sinking fund.
Most dental practice leases run for 10-25 years with break clauses at intervals. The lease will specify permitted use (dental surgery), rent review mechanisms (often RPI-linked or fixed percentage), and repairing obligations (full repairing and insuring leases are standard).
Typical leasehold costs (2025/26 example):
- Annual rent: £24,000 (£2,000 per month) for a 1,200 sq ft practice
- Service charge: £3,000-£6,000 per year
- Business rates: £5,000-£12,000 per year (depending on rateable value and small business relief)
- Lease assignment or new lease legal fees: £2,000-£4,000
- Rent deposit: typically 3-6 months rent (£6,000-£12,000)
- No SDLT on rent below £150,000 annual (most dental practices qualify)
The key advantage of leasehold is that your capital stays free for other uses: equipment purchases, working capital, associate recruitment, or a larger deposit on a second practice.
Tax Relief Comparison: Freehold vs Leasehold
Tax treatment differs significantly between the two structures. This is where many dentists make costly mistakes.
Leasehold: Rent and Service Charges
Rent, service charges, business rates, and building insurance are fully deductible against trading profits for both sole traders and limited companies. If you trade through a limited company, these costs reduce corporation tax at 19-25%. If you are a sole trader or partnership, they reduce income tax at your marginal rate (20%, 40%, or 45%).
Example: A practice paying £24,000 rent and £5,000 service charges saves £7,250 in corporation tax (25% of £29,000) if the company is in the main rate bracket. For a higher-rate sole trader, the saving is £11,600 (40% of £29,000).
Freehold: Capital Allowances and Structures and Buildings Allowance
When you buy the freehold, you cannot deduct the purchase price as a trading expense. Instead, you get relief through:
- Capital allowances on fixtures and equipment: Dental chairs, X-ray machines, compressors, suction units, autoclaves, and surgery fit-out qualify for Annual Investment Allowance (AIA) at 100% up to £1,000,000 per year. You need a Section 198 election with the seller to agree the value of these fixtures.
- Structures and Buildings Allowance (SBA): If the premises were constructed or substantially renovated after 29 October 2018, you can claim 3% per year straight-line on the qualifying construction costs. For a £240,000 premises, that is £7,200 per year for 33 years.
- No rent deduction: You do not pay rent, so you lose that deduction. Instead, you have mortgage interest (if financed), which is deductible for sole traders but subject to restrictions for limited companies (loan relationship rules apply).
Worked example: Freehold vs leasehold tax relief over 10 years
Assume a practice with £300,000 annual profit before property costs.
Leasehold scenario: Rent £24,000 + service charge £5,000 = £29,000 deductible per year. Over 10 years: £290,000 total deductions. Tax saved (25% corporation tax): £72,500.
Freehold scenario (no mortgage): No rent. SBA of £7,200 per year (if qualifying). Capital allowances on fixtures at purchase: say £50,000 (AIA 100%). Over 10 years: £50,000 + £72,000 = £122,000 total deductions. Tax saved: £30,500.
The leasehold route gives more annual tax relief. But the freehold route gives you an appreciating asset. The £240,000 premises might be worth £350,000 in 10 years. That capital gain is subject to Capital Gains Tax (CGT) on sale, currently 18% for basic-rate taxpayers or 24% for higher-rate taxpayers (2025/26 rates). Business Asset Disposal Relief (BADR) at 14% may apply if you sell the whole practice and meet the conditions.
NHS Contract and Premises Considerations
Your NHS contract (General Dental Services or Personal Dental Services agreement) is tied to the practice location. If you lease and the landlord decides not to renew, or sells the building to a buyer who wants vacant possession, you could lose the premises and therefore the NHS contract.
Freehold ownership eliminates this risk. You control the premises. If you want to sell the practice later, you can sell the freehold alongside the goodwill, which typically increases the sale price and attracts buyers who want owner-occupied premises.
However, NHS contracts also have a "premises clause" that requires you to maintain the surgery to a certain standard. As a freeholder, you bear the full cost of compliance. As a leaseholder, you can negotiate for the landlord to contribute to structural compliance works.
Exit Strategy: Selling a Freehold vs Leasehold Practice
Most dental practice buyers prefer freehold. A 2024 survey by a dental practice broker found that freehold practices sold for an average of 15-25% more than equivalent leasehold practices, partly because the buyer can finance the premises through a commercial mortgage and partly because of the security of tenure.
If you own the freehold, you can sell the practice as a going concern and claim BADR on the goodwill (14% CGT rate in 2025/26, rising to 18% from April 2026). The premises sale is a separate capital disposal, but if you sell the whole practice (goodwill + premises + equipment) to a single buyer, you may be able to structure the sale to maximise BADR on the goodwill element.
If you lease, you sell only the goodwill and equipment. The buyer takes an assignment of the lease (subject to landlord consent). Some landlords charge a premium for lease assignment, which can reduce the net sale proceeds.
When Freehold Makes Sense
- You have sufficient capital for a deposit (typically 30-40% of premises value).
- You plan to stay in the practice for 10+ years.
- You want to control the premises and avoid rent reviews.
- You want to maximise your sale price when you exit.
- You are comfortable with property maintenance responsibilities.
When Leasehold Makes Sense
- You have limited capital and need to preserve cash for equipment and working capital.
- You are buying a practice with a short remaining lease (under 15 years) and plan to sell within 5-7 years.
- You want maximum annual tax relief through rent deductions.
- You are buying a practice in a location where freehold prices are inflated (e.g., London or the South East).
- You prefer to keep property risk separate from practice risk.
Hybrid Approach: Buying the Freehold Personally and Leasing to Your Company
Many established practice owners use a hybrid structure. They buy the freehold personally (or through a separate property company) and lease the premises to their trading company at a market rent. This gives:
- Capital appreciation in your personal name (CGT-free on principal private residence if you live above the practice, otherwise subject to CGT on sale).
- Rent deductions in the trading company (reducing corporation tax).
- Rent income in your personal name (taxed at your marginal income tax rate, but with a 20% tax credit if received by a basic-rate company).
- Separation of property risk from practice risk.
This structure requires careful tax planning. HMRC can challenge the rent level if it is above market rate (transfer pricing rules apply to connected parties). You also need to consider the interaction with the NHS Pension Scheme, as rental income counts towards your NHS Pensionable earnings cap.
Practical Steps Before Deciding
- Get a dental-specific valuation: A general practice valuer may not understand how NHS UDA rates and private fee income affect premises value. Use a valuer who specialises in dental practices.
- Review the lease terms: If buying leasehold, check the lease length, rent review mechanism, repairing obligations, and any restrictions on assignment or subletting. A lease under 15 years can significantly reduce the practice sale value.
- Check NHS contract terms: Some NHS contracts require the practice to be owner-occupied. Others are silent on the point. Your solicitor should review the contract alongside the lease or freehold purchase.
- Model the numbers: Use a practice valuation calculator to estimate the impact of freehold vs leasehold on your sale price. Factor in the tax relief difference over your expected holding period.
- Speak to a dental-specialist accountant: The interaction between premises ownership, corporation tax, CGT, and NHS pension is complex. A general accountant may miss opportunities or create tax traps.
Final Thoughts
Freehold gives you control and capital growth. Leasehold gives you flexibility and higher annual tax relief. Neither is inherently better. The right choice depends on your financial position, your risk appetite, and how you plan to exit the practice.
If you are considering buying a dental practice and need help comparing freehold vs leasehold options, our team at Dental Finance Partners can help. We work with practice buyers to model the tax and cashflow implications of each structure. Contact us for a practice purchase review.
For more on practice purchase financial due diligence, see our guide: Practice Purchase Financial Due Diligence.