Selling a business, have you considered the tax implications?
Selling a business is probably the biggest transaction you’ll undertake during your life and most will expect to pay Capital Gains Tax (CGT) at the Entrepreneurs’ Relief (ER) rate of 10%.
Each sale is structured differently and the consideration could be in different forms; some of which may enable you to defer a CGT bill. But knowing that our tax laws are ever changing, is this a sensible move?
Our advice would be to plan ahead to ensure there are no nasty surprises when the disposal takes place and beyond; will you and your business qualify for ER and is your lifetime limit available?
Be aware that;
- If you sell the assets of your unincorporated business (or your partnership interest) to others for solely cash but some of the payment is deferred, CGT could be payable before you receive the balancing payment.
- If you operate your business through a company, the purchaser may want its assets rather than your shares. Generally speaking, this route is not as attractive to the vendor and often results in higher tax charges. Could your company be restructured beforehand to achieve a share sale?
- If you are offered a combination of cash and shares in the purchasing company as consideration, it may be possible to defer some of CGT payable but will you and the new company qualify for ER in the future?
- If some of the consideration offered is contingent and unascertainable (e.g. an earn-out arrangement), ER will not be available in full. If not structured correctly, some could be treated as remuneration.
Lawrence and his friendly team of advisers at CKLG can assist you review the structure of your business prior to its sale, consider ER and support you through the sales process (and beyond).
For advice on exiting a business, please call Lawrence and the team on 01223 810100.