If you are wondering whether, or when, you should sell your business, a sensible first step is to form an outline plan for its disposal.
The sale of a successful trading company will generate a Capital Gain. This would normally be taxed at 20% after deduction of your annual exemption (£12,000 for 2019/20).
Entrepreneurs’ Relief can reduce your tax rate to 10% on a gain of up to £10m, but this relief is under threat from a preelection promise to review and reform it. If you want to be sure of benefiting from this relief, take advice and be prepared to act quickly.
To be eligible to use Entrepreneurs’ Relief you must meet these conditions for at least 24 months ending with the date of the sale:
- be an employee, director or company secretary of the company or of another company in the same trading group
- hold at least 5% of the ordinary share capital of the company
- hold at least 5% of the voting rights of the company
- be entitled to at least 5% of the distributable profits available to the equity holders
- be entitled to at least 5% of the profits and assets available for distribution to equity holders on the winding up or be entitled to receive at least 5% of the total proceeds on the sale of the entire company
If you plan to sell your company and carry on the business on a smaller scale as an individual or partnership, or start up the same business again within two years, you can be caught by anti-avoidance legislation which will tax the gain as income.