SALE ETC Tax ETC Tax Spring 2023 Spring 2023 Your newsletter on tax matters ... that matter Your newsletter on tax matters ... that matter

A. How much do you need from your business sale? Does the performance of the business now support a valuation to achieve your target sale price? If not, can you achieve growth through operational efficiencies or is a top line increase required? Is it time for an acquisition, recruitment or to speak to a business growth specialist?

What you think the business is worth and what someone will pay for it are usually different figures and will be the subject of negotiation. The seller will need to understand what taxes will be payable, and when.

Q. Should I sell the shares in the company or the assets?

A. Selling the shares in the company will usually be most tax efficient but the buyer will want guarantees that there are no undisclosed liabilities in the company. This is all usually taken care of in a legally binding Share Purchase Agreement prepared by lawyers.

If you are selling the assets of the company you will pay corporation tax on any capital gains and the shareholders will pay capital gains tax when the company is wound up, so there is a double layer of taxation.

Editor’s comment: As can be seen many of the questions that business owners ask themselves when considering selling their business have tax consequences. Indeed, tax is often one of the drivers when considering how to structure a sale (although clearly should not outweigh any commercial considerations).

ETC Tax have significant experience in assisting clients planning for a sale. Please do contact us for help.

Further information can be found here

Q. And what tax do I pay when I sell the shares or wind up the company after selling the assets?

A. In most cases the proceeds from the sale of shares (on a sale or winding up) will qualify for Business Assets Disposal Relief (formerly Entrepreneurs’ Relief) so the first £1m of gain is taxed at 10% (20% on gains above that). It is important that the seller meets the qualifying conditions.

For married couples/civil partnerships consider splitting the shareholdings between two, if not already done, to maximise allowances/tax rates.

Q. I have considerable personal wealth. What about Inheritance Tax?

A. For Inheritance Tax purposes, shares in a private trading company are effectively exempt from IHT and this is lost when the shares are converted to cash. Gifting some shares into trust pre-sale can also be an effective way of passing on wealth to the next generation, as there will be no capital gains tax or IHT implications on the gift.

As can be seen, there are many aspects to consider when planning to sell a business and early planning is essential to achieve the best sale price and maximise the tax savings. Tax is a major consideration as it is, after all, the after-tax amount that the seller will ultimately enjoy.