For many people the New Year prompts a review of their life goals. If you are now wondering whether, or when, you should sell your business, a sensible first step is to make a provisional plan for its disposal.
The sale of a successful trading company will generate a capital gain, which would normally be taxed at 20% after deduction of the annual exemption (currently £11,300, £11,700 for 2018/19).
Entrepreneurs’ Relief can reduce the tax rate to 10% on a gain of up to £10m. But both of these conditions must be met for at least 12 months ending with the date of the sale:
· you held at least 5% of the ordinary shares and voting rights of the company, or you acquired the shares under the EMI scheme;
· you were an employee, director or company secretary of that company or of another company in the same group.
If you step back gradually from your company, retiring from your role as director before you sell your shares, you may miss out on this valuable tax relief. A plan to disincorporate and carry on the business on a smaller scale as an individual or partnership can be caught by anti-avoidance legislation.
If you would like to pass on your company to your employees but they can’t afford to buy it, an employee ownership trust can be used. The trust acquires enough shares to control the company, and holds those shares on behalf of the employees. You escape CGT on the shares you pass to the trust, as long as the controlling shares are transferred within one tax year.
Allow at least 12 months to prepare to sell your company.