Most dental principals spend decades building a practice and then think about the exit only when a buyer or a retirement date appears. The problem is that the two factors that most affect what you keep after tax, the Business Asset Disposal Relief (BADR) qualifying period and a clean normalised EBITDA, both take time to put in place. Exit planning is therefore best understood as a timeline rather than a single decision, and the sequence of moves matters as much as the headline sale price.
This guide sets out that timeline. It covers why roughly 24 months is the practical lead-in, how the 6 April 2026 BADR rate step fits into timing, how pre-sale profit extraction and pension funding interact with the sale, and the structuring choices (asset sale versus share sale, and how earn-outs are taxed) that shape the net result.
Why the lead-in is roughly 24 months
Two hard clocks set the minimum. The first is the BADR qualifying period: to access the reduced Capital Gains Tax rate on qualifying gains up to the £1m lifetime limit, the qualifying conditions must be met throughout the two years to the date of disposal. For a share sale that means holding at least 5% of ordinary share capital and 5% of voting rights, being an officer or employee, and the company trading throughout that period. If you incorporate late or restructure shareholdings close to a sale, you can reset that two-year clock and lose the relief on the part that no longer qualifies.
The second clock is EBITDA normalisation. Buyers do not value your reported profit; they value an adjusted figure that strips out owner-specific costs and one-offs and reflects a sustainable run-rate. Showing a stable or improving normalised EBITDA over two to three years is far more persuasive than a single engineered year, and the adjustments themselves (rebasing an above-market owner salary, removing personal costs, regularising associate splits) need time to settle into the accounts before a buyer's adviser tests them in due diligence.
Because both clocks run for around two years, a serious exit usually needs at least that long to prepare. Softer strategic work, building systems that do not depend on you, settling NHS commitment, and developing a successor, frequently needs longer, but the tax and valuation mechanics rarely reward a lead-in shorter than 24 months.
The 6 April 2026 BADR step as a timing consideration
The BADR rate has moved twice in quick succession. It was 10% to 5 April 2025, then 14% for disposals from 6 April 2025 to 5 April 2026, and 18% from 6 April 2026. The lifetime limit is £1m per individual and has not been indexed. For context, the main Capital Gains Tax rate on a non-residential gain is 24%, and the annual exempt amount is £3,000 for 2026/27, so even at 18% BADR still saves tax against the standard rate on qualifying gains.
The date of disposal for CGT is the date of the contract, not completion, where the contract is unconditional. So an unconditional exchange on or before 5 April 2026 fixed the 14% rate even if money and keys changed hands later. Where a contract is conditional, for example conditional on NHS contract novation by the commissioner, disposal happens only when the condition is satisfied, which can push the gain into a later, higher-rate band.
This is a genuine planning lever, and it deserves honest treatment rather than urgency. The right approach is to let the deal economics lead. A clean sale to a good buyer at a fair price taxed at 18% will almost always beat a rushed, discounted or poorly structured deal taxed at 14%. Use the rate band as one input into timing, alongside the buyer's readiness and your own, not as a reason to accept worse terms.
| Disposal date band | BADR rate on qualifying gains | Lifetime limit |
|---|---|---|
| To 5 April 2025 | 10% | £1m |
| 6 April 2025 to 5 April 2026 | 14% | £1m |
| From 6 April 2026 | 18% | £1m |
| Non-qualifying gain (standard CGT) | 24% | n/a |
Pre-sale profit extraction and pension funding
Two years out, how you take money from the practice starts to interact with the sale. If you have suppressed profits to manage income tax, the practice looks less profitable than it is, which can depress the multiple a buyer applies. Conversely, an artificially low owner salary inflates EBITDA in a way a buyer's adviser will normalise straight back out. The aim is a defensible, market-rate cost base that survives scrutiny, which is why your profit extraction strategy should be settled well before a sale rather than improvised in the final months.
Pension funding is the most efficient pre-sale extraction route for an incorporated practice. Employer pension contributions are deductible for corporation tax on a paid basis and carry no National Insurance, subject to the annual allowance of £60,000 for 2025/26. The allowance tapers where threshold income exceeds £200,000 and adjusted income exceeds £260,000, reducing by £1 for every £2 of adjusted income above £260,000 down to a floor of £10,000. Critically, you can carry forward unused allowance from the previous three tax years (using the current year first), which often lets a principal sweep retained company cash into a pension in the run-up to a sale before that cash becomes sale proceeds taxed under CGT.
There is a pension warning specific to dentistry. If you have incorporated and pay yourself mostly in dividends, remember that dividends are not pensionable for NHS Pension Scheme purposes. A pre-sale extraction plan should weigh the income-tax saving from dividends against lost NHS accrual, not look at the tax saving alone.
Structuring the deal: asset sale versus share sale
If the practice is incorporated, the buyer and seller must agree whether to sell the company's shares or the underlying business assets, and the choice changes both the tax and the practicalities.
In a share sale, the buyer acquires the company with its contracts, employees and history intact. The NHS contract stays inside the company, so there is no novation, but the buyer inherits all the company's liabilities, which makes their due diligence deeper. For the seller, BADR can apply to the share gain if the 5% shareholding, officer or employee, and two-year trading conditions are met.
In an asset sale, the buyer cherry-picks goodwill, equipment and premises and leaves the company behind. The NHS contract transfers only by novation with commissioner consent, and some commissioners treat a sale as a trigger to revisit the contract value, so this route carries contract risk that a share sale avoids. The sale price must be apportioned across goodwill, fixtures and equipment, which drives both the seller's CGT position and the buyer's capital allowances. A goodwill-heavy price split, with goodwill typically the larger share of practice value, sits differently for tax than one weighted to tangibles, so the apportionment is worth negotiating, not accepting as a formality.
| Feature | Share sale | Asset sale |
|---|---|---|
| What transfers | The whole company | Selected assets only |
| NHS contract | Stays in the company, no novation | Novation with commissioner consent |
| Liabilities | Pass to the buyer | Generally left behind |
| Seller relief | BADR on qualifying share gain | BADR on qualifying business assets |
If the practice is still unincorporated, s.162 incorporation relief lets you transfer the whole business as a going concern into a company wholly or partly for shares, deferring the gain into the share base cost. This is sometimes used pre-sale to convert a sole trader or partnership so a later share sale can access BADR, but it resets the two-year clock, which is another reason the structuring decision belongs early in the timeline. The interaction between the BADR rate band, the 5% conditions and the qualifying period is set out further in our note on timing a sale around the BADR rate change.
Earn-outs and deferred consideration
Corporate buyers and consolidators often pay part of the price as an earn-out tied to future performance, and the tax treatment of that deferred slice surprises sellers who assume it is simply taxed when the cash arrives.
Where part of the price is genuinely unascertainable at completion, the law treats you as receiving a separate chargeable asset at disposal, the right to the future payment (the principle in Marren v Ingles). That right is valued and taxed at completion, then there is a second disposal when the right is satisfied and the cash is received. The two consequences worth knowing in advance are that BADR generally does not reach the second disposal, so the earn-out element is usually taxed at the standard CGT rate rather than the relieved rate, and that if the eventual payment is less than the valued right, the loss can be carried back against the original gain.
Where consideration is fixed but simply paid in instalments (ascertainable but deferred), the full amount is taxed at disposal, but instalment relief can spread the tax payment over up to eight years where the consideration is payable over a period exceeding 18 months. The structure of the consideration therefore changes both how much tax you pay and when you pay it, which is why earn-out terms should be modelled before you sign, not after. We cover the mechanics in more depth in our guide to earn-outs and deferred consideration on a practice sale.
The sequence of decisions approaching exit
Pulling the timeline together, a typical principal works through these in order:
- Around 24 months out: confirm structure (sole trader, partnership, LLP or company) and shareholdings so the BADR clock is running cleanly; if incorporating pre-sale, do it now so the two-year period and the 5% conditions are satisfied by the time you sell.
- 18 to 24 months out: begin normalising EBITDA, rebasing owner salary to market, removing personal costs, regularising associate arrangements, so the trend is visible in two to three years of accounts.
- 12 to 18 months out: settle profit extraction and front-load pension funding using the annual allowance and three-year carry-forward while company cash is still inside the business.
- 6 to 12 months out: resolve NHS commitment, since major contract changes in the final year unsettle buyers, and stabilise systems and the team so the practice does not depend on you.
- 0 to 6 months out: prepare for buyer due diligence, agree asset versus share structure and the price apportionment, and negotiate any earn-out terms with the tax treatment understood in advance.
The NHS to private mix runs through all of this, because it influences both the multiple a buyer will pay and the novation risk on an asset sale, so how that balance is presented in the accounts is part of the preparation rather than an afterthought.
Preparing for due diligence
Buyers increasingly run thorough financial due diligence on dental practices, and preparing for it early prevents the late surprises that collapse deals or trim the price. The practical groundwork is complete, well-organised financial records, resolved compliance with the CQC, HMRC and professional bodies, documented key contracts and supplier and staff arrangements, and up-to-date equipment inventories. A practice that survives diligence cleanly holds its agreed price; one that throws up unexplained adjustments invites a renegotiation downwards.
Working with advisers
Exit planning links the tax, the valuation, the legal structure and your own retirement finances, so it usually involves an accountant, a solicitor and a broker working together rather than in sequence. Because the choices interact, for example a structuring decision that resets the BADR clock, or an earn-out that shifts tax outside the relief, the value of early advice is in getting the sequence right, not just the individual moves. The exit you want, the price, the tax outcome and the legacy for your team and patients, is largely decided in the two years before completion, not in the final negotiation.
This article is general information, not advice for your situation. The figures cited are for 2025/26 and 2026/27 and statutory thresholds change, so confirm the current position before acting.