Maximising cash on exit
The tax you pay on exit can have huge implications on how much money you exit with.
If you plan ahead, you can keep a significant proportion of your business sale proceeds. However, if exit planning doesn't take place, then a large amount of the proceeds may have to be paid to HMRC.
The earlier you plan for your business exit the better, as some of the conditions that will need to be met to minimise your tax bill on exit need to be in place up to two years ahead of any sale.
Our tax team can help with the following:
One of the most important aspects of exiting your business and planning your succession is tax planning. Without careful tax planning, your exit could end up costing you a lot more than it should. Here are the main areas of tax to consider:
If you trade as a sole trader or partnership, you may have to pay Capital Gains Tax (CGT) if you make a profit when you sell the business. You may need to pay CGT on land & buildings, plant & machinery, shares, intangible assets.
When selling a business, the most important consideration with regard to tax, is whether you will qualify for Business Asset Disposal Relief (BADR) . With Business Asset Disposal Relief you pay a lower CGT rate of 10% on the first £1m of gains when selling a qualifying business. To qualify you need to meet certain conditions and some of these must be met two years prior to sale. So, it's important to plan and not get caught out on a technicality.
If you run a limited company, you will need to pay Corporation Tax on profits from the sale of business assets. Assets are things your company owns, such as land and property, equipment & machinery and shares.
You may have an option to delay paying CGT using Deferral Relief. This is available through the Enterprise Investment Scheme (EIS), which is designed to encourage investment in early-stage UK companies. Whilst this enables you to defer paying CGT, EIS investments can be higher risk than other investments.
There are additional tax issues if you are thinking of selling your business for shares. By accepting shares as payment, you may be able to defer CGT. The other advantage of taking shares is that you may qualify for IHT relief through Business Relief. Ahead of sale, you may also consider putting shares in trusts for family members. This can be an efficient route to mitigate future IHT liabilities.
If you decide to sell your business, it's vital to consider what you want at the end of the transaction. If this is liquid assets (i.e. cash) then you need to consider inheritance tax. There will also be consequences if you decide to gift significant sums of money to other family members, so it is important to seek wealth planning advice before you decide to exit or sell the business.
