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There are lots of things to consider if you are planning on selling your business. No matter what your business model, whether you operate through a company, as a partnership or as a sole trader, you will need to take steps to ensure that your business is prepared for sale and positioned so as to achieve the best possible outcome for you.
Penelope Garden discusses a number of the important issues in an interview in B4 Magazine and Philippa Roles focuses on the tax considerations in the rest of this article.
Basic pre-sale tax planning
It is most important to consider your pre-sale tax planning options and, if necessary, to restructure the business so that you can benefit from the best possible tax treatment. Many sellers prefer to receive capital rather than income because the rate of capital gains tax is lower than that of income tax and in most cases this means that, where you own a company, you will want to sell the company shares rather than the company selling the business and you having to extract the sale proceeds as a dividend.
A pre-sale transfer to a spouse is a simple technique that can be used to enable you to benefit from two annual exemptions for capital gains tax (currently £11,100 per person). Shares can be transferred to your spouse using just a stock transfer form and without any tax consequences (but check there is no requirement to first offer them to your fellow shareholders in the company's articles of association). Similarly there may be scope for you to transfer a partnership interest or part of a business asset. However, whilst a transfer of shares is relatively straightforward, there may be other issues to consider before attempting to transfer a partnership interest or asset, so we would suggest you take professional advice before doing either of these.
Qualifying for entrepreneurs' relief
If your business is a trading business then you may be able to get Entrepreneurs' Relief on the sale of either your shares (if you hold more than 5% and are involved in the business) or the assets used in your business. Entrepreneurs' Relief reduces the rate of CGT to 10% on your first £10 million of gain.
In order to qualify you need to have held the shares, or the assets need to have been in use in the business, for at least 12 months (ending on the date of sale). There are other conditions but those are the main ones.
The points outlined in this article are just some of the issues you should consider prior to selling your business. Some of the suggestions made here require only a few weeks to carry out; others however, such as the Entrepreneurs' Relief planning, may require a 12-month lead time.
If you are thinking of selling your business and would like to discuss any aspect of this article then either Penelope Garden or Philippa Roles would be happy to speak to you.