Selling-on or disposing of a business is more complicated than most would think and business owners are sure to face a number of complex tax challenges. This is why it is important to seek specialist advice from the outset by speaking to someone who can guide you through the process.
Capital Gains Tax
If you are selling a business, it is important to be aware of the rules governing Capital Gains Tax (CGT) in the UK.
This is a tax that sole traders, self-employed business owners and business partnerships will incur on all ‘gains’ when selling or disposing of a business asset, such as land and buildings, plant and machinery, or even the entire business itself.
There are a number of CGT reliefs available to business owners, such as Entrepreneur’s Relief (ER) which can make for some significant tax savings.
ER enables business owners to pay a lower rate of CGT upon the sale or disposal of a business. In instances where ER applies, the rate of CGT paid can be reduced to just 10 per cent.
In order to qualify for ER, however, the business must be either a personal trading company or an unincorporated business. On top of this, a number of complex qualifying conditions need to be met.
It is important that business owners seek tailored advice in this respect – as the sale needs to be structured in the correct way in order for CGT to apply.
Roll-over relief and hold-over relief
ER is not the only way in which business owners can benefit from substantial CGT savings when selling or disposing of a business.
Depending on future intentions, it might be worth exploring roll-over relief, which enables sellers to defer CGT if their gains from a sale are to be reinvested in new business assets.
Another option which might be more appropriate is hold-over relief, which can defer CGT in instances where the business or asset is being ‘transferred’ to a family member, such as a brother or sister, as opposed to being sold.
Regardless of your circumstances, seeking appropriate tax planning advice and exploring which options are most appropriate to you is crucial to ensure that your business disposal is tax efficient.