Planning to Sell Your Company?
Newsletter issue - July 08.
The process of selling an established business can take some time. Even when you find a buyer the negotiations over exactly what will be sold can be drawn out. It makes sense to smarten up the company financially first. For example, dispose of any assets which are not really pulling their weight, such as obsolete machinery. Also any assets which have a personal connection with the directors, such as holiday homes or valued cars, can be put in the directors' own names.
Now look at what tax reliefs you could benefit from on the sale. If you leave the country before the sale and stay abroad for a period of five years or more, you could avoid paying UK capital gains tax on the gain. However, you may pay tax on the profits in your new country of residence, so be careful about the country you choose!
Entrepreneurs' relief can be claimed for most company sales, which reduces the effective rate of tax from 18% to 10% on the first £1 million of gains made by each shareholder. This can save up to £80,000 in tax for each shareholder who qualifies for the tax relief. To qualify each shareholder and the company must meet all of these conditions:
- The shareholder must hold at least 5% of the ordinary shares of the company and 5% of the voting rights for the company for at least one year ending with the sale;
- The shareholder must be an employee, or director, or company secretary of the company for at least one year up to the date of the sale;
- The activities of the company must be at least 80% trading, as opposed to investments, or it must be the holding company of one or more trading companies.
Where family members hold a small number of shares check whether they will each meet the 5% threshold based on their own shareholdings alone. Consider gifting some shares to your adult children or spouse to achieve this threshold. Where shareholders do own over 5% of the shares but do not work for the company, consider making them a director, or giving them a small part time job at the company for the year before the sale.
Company sales require a lot of planning, so talk to us as soon as you consider selling so we can help with the long term arrangements.