When looking to sell your business, together with all the other issues you need to take into account, there will be the issue of tax on the proceeds of the sale.
You’ve worked hard to build your business and will be looking forward to reap the benefits of the sale, don’t ignore the tax consequences when you calculate how much you’ll actually receive in £’s from the proceeds. As everyone knows tax is not always straightforward! The last thing you want is a nasty surprise right at the end of the sales process.
Tax is generally payable on the sale of shares in the business on the amount of the gain that has been achieved when selling. So it’s not always on the full sale value and you should seek to determine exactly what the business cost has been. You should also be eligible for the annual Capital Gains Allowance to offset against the gain itself.
Entrepreneurs Relief is also generally available, so that the tax is charged at 10% instead of the current standard 20% rate of tax. However in order to be eligible for this reduction, business owners need to meet certain strict criteria; there is also currently a lifetime limit of £10M on all gains for each individual.
Together with the above, another issue that should be considered by business owners who are planning to sell a business, is Inheritance Tax; whilst this is not usually payable on the value of a trading business, following a sale, the proceeds from the sale would normally be subject to inheritance tax at 40% upon death. This would also normally be subject to the Inheritance tax allowance (currently £325,000 per individual).
Business owners could seek to reduce any potential Inheritance tax charge by, for example, simply giving away some or all of the proceeds from the sale and subject to the Inheritance tax rules, after 7 years there would be no charge should the business owner then die.
You should ensure that you seek good professional advice well ahead of any sale in respect of these points.
Please note that the above rules and figures were correct at the time of writing this article.
Please also see links to articles produced by Wright Hassall, solicitors in respect of this subject.