Tax planning on exit

Minimising your tax bill on exit

Business Asset Disposal Relief

When selling a business, one of the most important tax considerations, 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.

Capital Gains Tax

Capital Gains Tax is paid if you make a profit or ‘gain’ when you sell or dispose of a business asset. You pay Capital Gains tax if you’re a self-employed sole trader or in a business partnership and is also payable on the sale of shares in a limited company. Other organisations like limited companies, pay Corporation tax on profits from selling their assets. Business assets you may need to pay tax on include:

land and buildings
fixtures and fittings
plant and machinery, for example a digger
shares
registered trademarks
your business’s reputation

Exit strategy tax planning

The tax you pay on exit can have a huge impact on how much money you exit with.

Depending on your exit strategy, it is best to plan well ahead and seek advice to ensure you leave your business with a significant proportion of the sale proceeds or your family benefit in the most tax efficient way.

The earlier you plan, the better because some of the conditions that will need to be met to utilise tax reliefs on exit need to be in place in the years ahead of a sale.

Here's just some of the tax areas and reliefs you need to consider:

Deferral Relief

Some people delay paying CGT using Deferral Relief. This is
available through the Enterprise Investment Scheme (EIS), which
encourages investment in early-stage UK companies. Although
this enables you to defer paying CGT, consideration needs to be
given to the fact that EIS investments can be higher risk than
other investments.

Corporation Tax

If you run a limited company, you will need to pay Corporation Tax
on any profit or ‘gain’ from the sale of business assets. Assets are
things your company owns, such as land and property, equipment
& machinery and shares.

The gain is usually the difference between what you paid for the
asset and what you sold it for. You’ll need to use the asset’s
market value if your business gave it away, or sold it for less than
it was worth.

If you are selling your business for shares, then there can be some tax benefits. 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.

Inheritance Tax (IHT)

Inheritance tax (IHT) needs to be carefully considered when selling. The proceeds of the sale of your business will be added to your personal estate and could be subject to IHT on your death. There could be IHT issues if you gift significant sums of money to other family members. You can consider initially transferring the business assets into a discretionary trust. It is important to seek wealth planning advice dependent on your own personal objectives and circumstances.