What Is a Squat Practice and How Does It Compare to Buying an Existing Dental Practice?
When you decide to own a dental practice, you face a fundamental choice. You can buy an existing practice with a patient list, established goodwill and working systems, or you can start from scratch in a new location with no patients and no track record. The second route is commonly called a squat practice, sometimes a greenfield or de novo start-up.
Both routes can work, but they produce very different tax profiles and risk exposures. The defining tax contrast is simple to state. An existing-practice purchase buys goodwill, a stock of fixtures (where a s.198 election is critical) and, often, a trading contract. A squat is largely fresh, AIA-able expenditure on a new fit-out. This article compares the two from a UK dental accounting perspective using 2026/27 tax rates. We focus on the tax and finance differences that matter most to principals and buyers, not on headline prices.
If you are weighing up which path suits you, read our practice acquisition financial due diligence guide alongside this for the diligence side of an existing-practice buy.
Where the Money Goes: Goodwill and Fixtures vs a Fresh Fit-Out
Buying an Existing Dental Practice
An existing-practice purchase splits the price across three things: goodwill, the property (freehold or leasehold) and the tangible fixtures and equipment. Goodwill (the patient list, reputation, location and established revenue) is typically the largest slice, often 60 to 80% of the total. The rest sits in the building and in the fixtures and plant inside it.
That split drives the tax outcome. Goodwill is an intangible with restricted relief (covered below). The tangible fixtures can carry valuable capital allowances, but only if the purchase is structured to capture them. Our guide on how much of a dental practice price is goodwill explains how the apportionment is built and why it matters for both sides.
Starting a Squat Practice
A squat avoids goodwill entirely. Your capital goes into leasehold improvements and a new fit-out: dental chairs, X-ray and imaging equipment, compressors, suction, autoclaves, IT systems, cabinetry, and the building services that make a surgery work. Because almost all of this is fresh expenditure you incur and own directly, it flows into your own capital allowance pools without any of the fixtures-election complications of a second-hand purchase.
The trade-off is risk, not headline cost. You have no guaranteed income, patient acquisition is slow, and NHS contract values (UDAs) are hard to obtain in many areas. For the planning side of a build, see our walk-through of the cost of setting up a dental practice.
Capital Allowances: The Squat's Structural Advantage
A Squat Is Largely AIA-able Expenditure
This is the squat's biggest tax strength. The Annual Investment Allowance (AIA) is £1,000,000 per 12-month period and gives 100% relief in the year of purchase on qualifying plant and machinery. For a new fit-out that covers the bulk of what you buy: chairs, an OPG or CBCT unit, compressors, suction, autoclaves, loupes, surgery computers and software all sit in the main pool and can be written off in full against your profits in year one.
A fit-out is not all main-pool plant, though. It splits two ways for capital allowances:
- General plant and machinery (chairs, imaging, compressors, IT): main-rate pool, writing-down allowance (WDA) of 18%, reducing to 14% for relief from 1 April 2026 (corporation tax) or 6 April 2026 (income tax) under Finance Act 2026 s.28. A period straddling that date uses a hybrid, time-apportioned rate.
- Integral features and fixtures (electrical systems, cold and hot water, heating, air and ventilation): special-rate pool, WDA of 6%, unchanged.
The WDA bandings only matter for spend that exceeds the AIA. Because the AIA covers most surgery kit at 100%, the practical move is to direct any AIA you cannot use on everything towards the slower-relieving 6% special-rate items first, leaving the faster 18%/14% main-pool items to run down on their own. A new 40% first-year allowance on new main-rate plant has also been available since 1 January 2026 (FA 2026 s.29), which is relevant where a single year's spend tops the AIA. Our capital allowances example for a dental practice shows how a fit-out claim is built up item by item.
An Existing Purchase: Fixtures Allowances Hinge on the s.198 Election
On an existing-practice purchase, much of the price is locked into goodwill, which does not attract capital allowances. The tangible fixtures inside the building can attract allowances, but only if the deal is structured to capture them, and this is where buyers routinely lose relief.
To claim allowances on second-hand fixtures, two conditions in CAA 2001 s.187A must be met: the past owner must have pooled the fixtures (the pooling requirement), and you and the seller must fix their transfer value in a joint s.198 election (the fixed-value requirement). The election must be made within two years of the sale (s.201). Miss it and the buyer's fixtures allowances are forfeited permanently.
The election value is also a negotiation. The buyer wants it high (more future allowances); the seller wants it low (a smaller balancing charge clawing back their own past allowances on disposal). Settle this in the sale agreement, not afterwards. By contrast, the squat principal pools their own fresh expenditure with no counterparty and no two-year clock to run against. This is the single clearest reason a squat tends to deliver faster, cleaner capital allowance relief than an equivalent purchase.
Tax Treatment of Goodwill: The Other Key Difference
Goodwill on an Existing Practice Purchase
When you buy an existing practice through a limited company, the goodwill you acquire is an intangible fixed asset. Relief is not automatic. For goodwill acquired on or after 1 April 2019 as part of a business acquisition, fixed-rate relief of 6.5% per year is available (a write-down over roughly 15 years), but only where the acquisition also includes qualifying intellectual property, and the relief is capped at six times that qualifying-IP expenditure (Finance Act 2019, CTA 2009 Part 8 Chapter 15A, s.879A onward). A generic assumption that buying after April 2019 always delivers 6.5% relief is wrong because of the IP condition.
Goodwill purchased between 8 July 2015 and 31 March 2019 generally attracts no amortisation relief at all, a trap buyers from that period still face. And if you buy as a sole trader or partnership rather than through a company, goodwill is not amortised for tax at all; relief comes only on a later sale through the capital gains computation. For the detailed mechanics, see our note on goodwill amortisation rules post-2019.
Squat Practice: No Purchased Goodwill, Different Reliefs
A squat has no purchased goodwill, so the 6.5% amortisation question never arises. You build goodwill organically, and it has no tax cost base. The relief you get instead is the capital allowance acceleration described above, which is usually faster and more valuable in the early years than slow goodwill amortisation would have been.
When you eventually sell a squat, the goodwill you built is a capital asset. Business Asset Disposal Relief (BADR) may apply to qualifying gains up to a £1m lifetime limit per individual, at a rate of 18% for disposals from 6 April 2026 (it was 14% for 2025/26 and 10% before that). Because your base cost for organically built goodwill is effectively nil, broadly the whole sale value of that goodwill is a chargeable gain, which is exactly why a sale needs planning with around 24 months' lead time to meet BADR's two-year qualifying period.
Profitability and Ramp-Up: The Tax Picture Once Trading
Existing Practice: Profit From Day One, Less Capital Acceleration
An existing practice usually generates positive cash flow immediately because it inherits a patient base and (often) a UDA contract. The tax cost of that certainty is that a large share of the purchase price sits in goodwill with restricted or no amortisation relief, and the fixtures allowances depend on getting the s.198 election right. If the buy is debt-funded, business-loan interest is deductible against trading profit, but the principal slice of the goodwill price is not.
Squat Practice: Early Losses That Carry Real Tax Value
A squat typically runs at a loss for the first several months while you carry rent, staff and equipment finance ahead of patient income. Those early trading losses are not wasted: they can be relieved against other income or carried forward against later practice profits, smoothing the eventual tax bill once the practice matures. Combined with full AIA relief on the fit-out in year one, the squat's early tax profile is loss-relief plus accelerated allowances, against the existing practice's immediate profit but restricted goodwill relief.
Once established, a squat can be highly tax-efficient: no goodwill amortisation to track, a clean capital allowance history, and lower debt service if the fit-out rather than a large goodwill price was the main spend.
VAT, Corporation Tax and Profit Extraction
VAT
The supply of dental care (medical care) and dental prostheses by a registered dentist or dental care professional is exempt from VAT under VATA 1994 Schedule 9 Group 7, whether NHS-funded or private. Purely cosmetic treatment with no therapeutic purpose (for example cosmetic facial aesthetics or tooth whitening) can be standard-rated, and a practice with both exempt and taxable supplies operates partial exemption.
The routes differ in how VAT bites on the build. An existing-practice purchase is typically a transfer of a going concern (TOGC), so no VAT is charged on the sale provided HMRC's TOGC conditions are met, which avoids a cash-flow hit. A squat fit-out attracts VAT at 20% on equipment, building works and professional fees. Because core dental income is exempt, most practices cannot simply reclaim that input VAT: the registration threshold of £90,000 counts taxable (non-exempt) turnover only, and a partly-exempt practice recovers input VAT only to the extent it relates to taxable supplies. For a freehold or major refurbishment over £250,000, the Capital Goods Scheme can also spread that recovery over ten years. This makes irrecoverable VAT a genuine real cost on a squat fit-out, and a point to model before you commit.
Corporation Tax and Profit Extraction
Both routes commonly use a limited company. Corporation tax is 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief in between. Profit extraction is via salary and dividends, and the dividend rates for 2026/27 are 10.75% ordinary, 35.75% upper and 39.35% additional, with a £500 dividend allowance (the ordinary and upper rates rose from 8.75% and 33.75% from 6 April 2026 under Finance Act 2026 s.4).
One structural point cuts across both routes: incorporation can cost NHS pension accrual, because for an incorporated principal taking a PAYE salary only the salary is pensionable and dividends are not (an incorporated GDS or PDS contract-holding provider is a partial exception, able to pension drawn income up to the net pensionable earnings ceiling). Always weigh the incorporation tax position against the pension-accrual cost rather than the tax saving alone, whichever acquisition route you pick.
Risk Profile and the NHS Contract
Existing Practice Risks
Buying carries diligence risk. The patient list may be overstated, UDA values may sit at the low end of the contract range, key staff may leave after completion, and equipment may have deferred maintenance. Goodwill valuation is subjective and an excessive price can draw HMRC attention. Crucially, an existing practice may carry a UDA contract that transfers on an asset sale by novation with the commissioner's consent (some commissioners use the sale to renegotiate the per-UDA value), or stays inside the company on a share sale. That contract is often the single most valuable inherited asset. The income stream is known and proven, and lenders can see historical accounts. Use our acquisition due diligence guide as the checklist before you commit.
Squat Practice Risks
Squat risk is materially higher. There is no guaranteed patient base, and a squat has no NHS contract unless one is separately commissioned. New UDA allocations are scarce in many areas, so a squat often relies on private fees, which build slowly. Staff recruitment is harder for an unknown practice, and early equipment failures can hurt before income arrives. The upside is the clean tax history described above: accelerated allowances, usable early losses, no inherited goodwill price, and a low base cost that makes BADR on an eventual sale efficient.
Which Route Suits Which Dentist?
An existing-practice purchase suits a dentist who wants immediate income, can access bank finance, prefers lower risk, and values inheriting a UDA contract. The tax disadvantage of restricted goodwill relief is offset by cash-flow certainty, provided the s.198 fixtures election is handled so the tangible allowances are not lost.
A squat suits a dentist with capital reserves, tolerance for an extended loss-making ramp-up, and the appetite to build from scratch with modern equipment and no inherited problems. The tax advantages are real: full capital allowances on a fresh fit-out, no goodwill amortisation to police, usable early-year losses, and a low CGT base cost on a future sale.
Some dentists do both, buying an existing practice for immediate income and later opening a squat as a second site once the first is stable. For personalised advice on which route fits your numbers, contact us through our contact page or book a free practice health check.
Summary of Key Differences
| Factor | Existing Practice | Squat Practice |
|---|---|---|
| What the spend buys | Goodwill + fixtures + (often) a trading contract | A fresh, largely AIA-able fit-out |
| Goodwill cost | Usually the largest slice of the price | None (built organically) |
| Goodwill tax relief | 6.5%/yr only if post-1-Apr-2019 with the qualifying-IP condition and 6x cap (not automatic) | Not applicable (no purchased goodwill) |
| Capital allowances | Fixtures only, and conditional on a s.198 election within 2 years (s.187A pooling) | Full AIA (£1m, 100%) on most new equipment, pooled directly |
| Main-pool WDA on excess spend | 18% reducing to 14% from April 2026 (FA 2026 s.28) | 18% reducing to 14% from April 2026; special-rate features 6% |
| NHS contract | May carry a UDA contract (novation with commissioner consent on asset sale) | None unless separately commissioned |
| Early tax profile | Profit from day one; restricted goodwill relief | Early losses (relievable) + accelerated allowances |
| Risk level | Lower (known income, lender comfort) | Higher (no patient base, no guaranteed contract) |
| BADR on later sale (from 6 Apr 2026) | 18% on qualifying gains to the £1m lifetime limit | 18%, and efficient given a low base cost |
The right choice depends on your capital position, risk appetite and timeline. Both routes can build a successful ownership career when the tax structure is set up correctly from the outset with dental-specialist advice.