Selling a Business: How can I minimise my tax liabilities on the sale?
August 16, 2012
In our fourth Selling a Business blog, Tony Medcalf discusses the tax implications involved in business sales.
As a shareholder you are liable to capital gains tax (CGT) on the sale of your shares in your business. You will pay CGT on any increase in value of your shares, after the deduction of any reliefs such as the capital gains tax annual exemption, currently at £10,600.
The rate of capital gains tax can be 10 per cent or 28 per cent for higher rate tax payers.
The 10 per cent CGT rate is available on the first £10m of lifetime gains that qualify for Entrepreneurs’ Relief. Any gains in excess of this lifetime limit are subject to tax at 28 per cent.
In relation to a sale of shares in a company, in order to qualify for Entrepreneurs’ Relief the following conditions must be satisfied throughout the 12 month period immediately preceding sale:
– The company must be a trading company or holding company of a trading group
– The shareholder must hold at least five per cent of the nominal share capital which entitles them to at least five per cent of the voting rights; and
– The shareholder must be an officer or employee of the company or a group company.
To qualify as a trading company or group, the activities of the company or group must not include a substantial proportion of non-trading activities, such as holding investment assets. HMRC has issued guidance which says that ‘substantial’ is greater than 20 per cent of the company’s income, asset values, costs and management time.