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Beware the PCT traps for Property Owners

August 2009

Introduction

 

There are important regulations governing what income can be generated by practices from premises they own and this article clarifies what can and cannot be done. The regulations are found in The National Health Service (General Medical Services -Premises Costs) Directions 2004.  PCTs are, however, using some of the clauses in this document to creatively penalise GP practices and GPs need to know how to protect themselves.

 

The Private Income Restriction

 

Firstly, the regulations:  There is a common misunderstanding that a GP practice can rent out some of their premises and as long as the rental income is less than 10% of their total income, they will not suffer a reduction from their rent reimbursements.  This is not the case.  The 10% abatement applies where a GP practice has more than 10% of its income from private sources, e.g. private patients, medical legal work, etc. not where the source of income is private rental.  In fact, these regulations (found in paragraph 49 of the Regulations) have a schedule of percentages for the reduction of rent reimbursement depending on the amount of private income.  These are as follows:

 

 

Appropriate Abatement Percentage

Private Income Percentage

0%

Up to 10%

10%

Between 10% and 20%

20%

Between 20% and 30%

30%

Between 30% and 40%

40%

Between 40% and 50%

50%

Between 50% and 60%

60%

Between 60% and 70%

70%

Between 70% and 80%

80%

Between 80% and 90%

90%

Above 90%

Private Rental Restriction

 

This is separate from where a GP surgery rents out part of their premises. These regulations are found in paragraph 48 of the Regulations and it states that, where a practice receives a contribution towards premises costs, or receives rent, the PCT must set off that contribution against the reimbursements for rent.  In other words, there is no 10% de-minimis and any rent received will be deducted from the rent reimbursed.

 

PCT Aggressive Construction of the Regulations

 

As mentioned in the first paragraph, PCTs are using these regulations aggressively to try to reduce rent reimbursements.  Paragraph 39 says that reimbursements for “borrowing costs” (the old Cost Rent scheme) will continue until one of three events:

 

  1. the loan is paid off;
  1. alternative borrowing arrangements are entered into and the GP negotiates lower loan costs in which case a new rate is recalculated;
  1. the GP transfers to Notional Rent.

 

That seems straightforward, however, a client of ours, a six partner practice owning their premises had the following scenario:

 

Two partners retired and they were paid for their share of the premises and paid off their share of the loan.  Two new partners bought into the premises, borrowing funds to do so. You would think that nothing had materially changed.  There are still six property owning partners, four of whom have carried on undisturbed and two new partners who bought in on the strength of the Cost Rent reimbursement.  The PCT wrote to the practice and claimed under point 1 above that the whole loan should be moved from Cost Rent to Notional Rent since two of the partners paid off their loan.  You might think that this is nonsense, but the PCT were insistent.  They claimed to have DoH guidance on this (although it could not be produced when demanded) and eventually, after the intervention of ourselves and the LMC, there was a compromise that the Cost Rent for the part of the two partners’ loan would be moved to Notional Rent and the rest could remain on Cost Rent.  This compromise was accepted against our advice and as you will probably agree, makes no real sense.  Who should bear the cost of the reduced rent reimbursement?  The two partners who acquired the shares of the partners who paid off their loans, or should the loss be shared over all the partners?  This is something for the practice to decide.

 

The moral of the tale is to know these 2004 Regulations and never pay off a loan in full!

 

Laurence Slavin