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SOUTH WEST CARE SECTOR MUST PREPARE FOR A TOUGH YEAR, SAYS BISHOP FLEMING

Sector expert forecasts flurry of sell-offs in advance of Capital Gains Tax changes

Market conditions for the South West‘s 2,000-plus care homes are set to become a lot harder in 2008, according to a sector expert.

Tim Godfrey, head of the specialist care sector team at Top 50 accountants and business advisers Bishop Fleming, says a combination of factors means last year‘s “seller‘s market” will become a “buyer‘s market” in 2008.

He says care home owners will increasingly feel the financial squeeze this year from downward pressure on fee levels and increases in the National Minimum Wage – on top of the ongoing effects of the global “credit crunch.”

And Mr Godfrey predicts a flurry of selling activity in the region‘s care sector as owners attempt to beat the 8 per cent hike in Capital Gains Tax, which takes effect in April.

“With more than 600 care homes in Devon alone, and another 200-plus in Cornwall, the care sector is of major economic importance here in the South West,” says Mr Godfrey.

“But now, following a bumper year last year, there appear to be grey clouds on the horizon, with the seller‘s market of 2007 turning into a buyer‘s market in 2008.

“The Government‘s ‘Putting People First‘ initiative, which released a further £500 million to support living in the community, means care home owners will be increasingly reliant on private clients who do not rely on funding.

“The introduction of ‘fair pricing‘ for fees is also leading to owners having to justify existing fee levels, so returns are coming under pressure, off the back of below inflation rises in fee levels in 2007.

“And margins in care homes are being squeezed still further by increases in the National Minimum Wage, the rising cost of borrowing and above inflation rises in overheads.”

Tim Godfrey says all of this will result in falling profits for many care home owners, which will have a direct impact on values which rely on profit multiples to arrive at a selling price.

He forecasts that the imminent changes to the Capital Gains Tax (CGT) regime will therefore persuade increasing numbers of care home owners to sell up before 5 April.

“At 10 per cent tax after two years, the rise to 18 per cent after 5 April is an effective 80 per cent tax increase,” comments Tim Godfrey.

“For example, we are currently advising on a transaction where completion is set to take place next month. A delay until after 5 April would cost the vendor an extra £200,000 in tax, and in common with other professional advisers in the sector, I am expecting to have transactions of this type going ‘down to the wire‘”.

ENDS             17th January 2008

For further information please contact Neil Fraser, Sturgess Van Damme, 01275 349011, neil@sturgessvandamme.co.uk