Personal tax planning before and after selling your business

Tax planning considerations – Before the sale

Will Business Asset Disposal Relief (BADR) be available?

One of the first questions many business owners ask is whether they will qualify for BADR. Where available, BADR can reduce the rate of Capital Gains Tax (CGT) payable, saving tax at 6% on the first £1m of qualifying gains, where the individual’s lifetime allowance is available.

It is important to review shareholder structures, ownership percentages, employment status and qualifying periods well in advance of any transaction to ensure the necessary conditions are satisfied and if not, action can be taken to maximise reliefs.

Is the current shareholding structure appropriate?

Most businesses change over time, and shareholdings that were suitable when the business was established may need reviewing, particularly those between spouses or civil partners.

Succession planning objectives for the family are key and deciding who should benefit, how and when.

Restructuring immediately before a sale can create risks, so advice should be sought at an early stage when there is still time to implement any changes that could help mitigate tax.

Should wealth be passed on to the next generation?

Business owners may wish to consider whether part of their shareholding should be transferred to family members or into trust structures as part of a wider succession and Inheritance Tax (IHT) planning.

Advance planning may provide opportunities to reduce IHT exposure by passing value to the next generation before sale triggers increased personal wealth.

The sale can also provide the capital needed to fund retirement and it is therefore important to consider this alongside the transaction itself, as decisions made before and after the sale can have a significant impact on the amount of wealth retained.

Employment Tax Issues

When selling a business, it is also important to consider the employment tax implications of any payments made to individuals, before or after completion. Bonuses and other incentive payments that arise from an individual’s employment are generally subject to Income Tax and NICs rather than CGT, and the timing and nature of any payments should be carefully reviewed.

Early planning is essential to help ensure the tax treatment of sale related payments and any share-based incentives received is understood.

Tax planning – After the sale

Managing the tax liability

A business sale can generate significant a CGT liability and owners should be aware that whilst some sale proceeds may be deferred, contingent on future performance, or received in a different form, CGT may nevertheless become payable on the transaction at the point of sale.

Careful planning is therefore important to ensure cashflow is sufficient to meet any tax liabilities as they arise.

Reviewing inheritance tax exposure

A business may have qualified for valuable inheritance tax reliefs while it was owned. Following a sale, cash and investment assets will not be subject to any reliefs.

As a result, there could be a significant increase in potential IHT exposure after a transaction and advice should be taken on how to mitigate this.

How can we help?

At Gravita, we work closely with business owners throughout the lifecycle of a business, particularly when a transaction is being undertaken. We help them understand both the immediate tax consequences and the longer-term implications for their personal wealth.

Our team can assist with the following:

• Pre-sale tax reviews
• Business Valuations
• BADR eligibility assessments
• Corporate restructuring prior to sale
• Review of legal contracts
• Shareholder and ownership planning
• IHT reviews and succession planning advice
• Trust and family wealth structures
• Pension and retirement planning considerations

With the uncertainty of the approaching Budget, business owners should be aware that tax rates, reliefs, and planning opportunities may change. Individuals considering a business sale, or who have recently completed a transaction, should seek advice promptly to ensure they are taking advantage of currently available reliefs.