Business Exits

KELLY GREIG, HEAD OF TAX AND ESTATE PLANNING, EIGHT INTERNATIONAL TAX & LEGACY EXPERTS

Looking to exit a business, be it by sale, a management buyout or merely just a closure of the business, the key is taking early professional advice and understanding your options and the implications. Personal tax advice is often something that gets lost in the excitement of the sale and the corporate lawyers doing their stuff. However, there are some vital planning opportunities that are lost after sale.

This article focuses on the sale of the business, rather than the closing down. There are many tax considerations for the business either way. However, with a sale the personal tax implications need careful consideration.

Do you know your residency status and is it going to change?

It is important to have taken advice on where you are deemed to be resident for tax purposes. Given each country has its own rules, it is possible to be resident in two countries at the same time.

Since the Covid restrictions being lifted, it is not sur prising that British Expats have wanted to return to the UK to see family that they have not seen for many months. However, this has caused its own problems with some individuals overstaying, meaning that their income and gains are now subject to UK taxes. Even if you have not done this, if you have made a gain your business or been taking a salary up until sale, it is important that you understand the timing of return ing to the UK (if that is your plan) to ensure the whole amount is not taxable in the UK. Sure, there is a double tax treaty with the UK and Singapore, but this just en sures that tax is not paid twice, it does not reduce the UK liability (which is often the highest)

Deferred consideration or sale of business in chunks

Have you given thought to how the deal will be struc tured? It is common for businesses to be sold now in a way in which you do not receive the total consider ation up front, instead the business is sold in chunks, or the consideration is deferred. It is important to un derstand which way yours is structured as it will have quite different tax consequences. Although there is no capital gains tax in Singapore, if the business is sold in chunks with some of those payments being received when you are then resident back in the UK, there will be capital gains tax considerations to consider. It is a good idea to take tax advice at that point to ensure that the consideration is structured in the most tax efficient way.

Inheritance Tax for UK domiciled individuals

Firstly, most expats I speak to assume that they are no longer UK domiciled because they have not been living in the country for a prolonged period. This is usually not the case. To lose your UK domicile, you need to have really cut all ties with the UK and made a per manent intention to live in another country and make your life there.

HMRC will start with a presumption of UK domicile and then this needs to be displaced. Most UK expats have not done enough to do this. This means that on death, your worldwide estate is subject to UK inheritance tax. It also means that during your lifetime, the taxation of gifts made by you are determined using the UK inheri tance tax rules other foreign rules may also apply.

For UK domiciled individuals, most shares in trad ing companies will qualify for 100% exemption from Inheritance tax (the rules are much more complex than this, so it is necessary for professional advice from an inheritance tax advisor, either CTA or Solicitor to be taken. However, on sale of the shares (or other inter est) the exemption is lost, and you could find your self in a position where your potential inheritance tax liability has increased. There is an opportunity to reinvest these proceeds into other assets that qualify for the same relief, if you do not fancy running anoth er business, a portfolio on the Alternative Investment Market will do the trick. However, there is always a possibility that this relief can be taken away, espe cially when the UK government are trying to make up funds.

If you were looking to gift property to children for example, from the proceeds, it is better that, that is structured prior to the sale. This allows some of the shares to be transferred (it can be structured so no physical transfer is required) prior to sale where the exemption can be claimed. Even better would be a transfer into trust or several trusts to ensure you can continue to control the assets and decide when the beneficiaries receive them. By structuring this way, you will have minimised your taxable estate on death.

These are just some of the considerations when dealing with Tax. It is important that you seek advice from a suitably qualified professional. For UK taxation, this would be in the form of a Chartered Tax Advisor or a Solicitor specialising in Taxation. Remember timing is key, do not leave it until too late.

About Kelly

Kelly moved her family to Singapore to begin an incredible new venture, as the Head of Eight International Tax & Legacy Experts. She is an expert in her field, working holistically with her clients and their advisers to create long-term succession plans, ensuring their needs are met in a tax-efficient manner while providing them and their families with guaranteed protection. Kelly tailors every case to her clients’ needs to fulfil their requirements. Involving tax or trust advice for high-net-worth individuals or setting up and managing medical care.

About the Company

Eight International Tax & Legacy Experts offer advice on a vast spectrum of legal services to individuals and business owners in Asia and the UK. Most importantly, our approach is to handle the most complex and involved cases, making them as straight forward as possible for you. Eight International Tax and Legacy Experts are associated with Eight Wealth International. In addition, we also work with partners across an extensive network. Through our partnership with Eight Wealth International, we provide our clients with a truly holistic blend of Tax Consulting, Wealth Management, and Estate Planning advice, offering a comprehensive and qualified Financial Planning approach and Private Banking to international clients. Find out more at https://eightinttaxandlegacy.asia/

Eight International Tax & Legacy Experts are active members of the BritCham Financial & FinTech Committee