Tax considerations – pre and post sale

When selling a business, whilst the tax issues should not override the commercial aspects of the transaction, it is a critical consideration.

I cannot start to cover the detailed tax issues that need to be thought through in a brief article, but in high-level overview, here are some of the key tax considerations:

At least 18 months prior to the proposed sale date, review the ownership structure of the business to allow time for any restructuring that may be required to minimise the tax on sale.

The target of any sale is to qualify for Entrepreneurs Relief, which results in a 10% capital gains tax (“CGT”) charge on up to £10M of capital gains (rather than the standard 28% tax CGT rate). Where the sale is of shares, it may be worth taking into consideration any shares owned by family members to ensure the optimum ownership at least 12 months prior to a sale.

One of the key points to bear in mind is around whether you are selling shares or assets. A conflict may arise between the vendor and the purchaser, who may well want to structure the transaction in very different (and conflicting ways) to minimise their respective tax positions. This could have a significant effect on the tax liability arising and so you need to have a full understanding of the implications before entering into any discussions with proposed purchasers.

Other taxation aspects may also arise, including VAT, Stamp Duty and Income Tax, all of which need careful planning well in advance to minimise overall tax cost.

A point often forgotten is that following the sale of the business, you will hold cash rather than an interest in a business. It is likely that the business would have effectively been exempt from Inheritance Tax on death but, following a sale, Business Relief will not apply. With a bit of clever planning it is possible to minimise future post sale taxes, once the transaction is complete.


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Bryan Elkins
Head of Spofforths Tax Consultancy Services




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