Maximise capital gains and minimise tax when you exit your business
Capital gains tax relief has become more generous with the 2011 increase in the level of entrepreneurs’ relief available. Sellers are now able to benefit from a tax rate of 10% on the first £10 million of gains on business asset sales; the remainder being taxed predominantly at 28%. Therefore the tax position for the seller can be relatively advantageous and it remains a very attractive proposition for entrepreneurs to groom a business for future sale.
More than ever, due to the qualifying criteria behind entrepreneurs’ relief and associated reliefs, exit tax planning
requires careful, long term consideration and a clear plan from the outset if you are to realise the full value of your many years of hard work.
Top tax planning tips for a successful business exit
The key aspects to building a business to ensure it attracts the maximum value on sale are:
- Have a clear view of your long term aspirations early in the lifecycle of your business so you create a business that has a clear, intrinsic value without the involvement of the original business founders;
- Consider how your business would continue if you were no longer a key part and ensure you plan to recruit and train the right staff to allow for this;
- Run your business with appropriate record keeping from day one. Have the accounts done properly and make sure your company secretarial paperwork is up to date - this will save many problems at a later date;
- Proper records become very important when a potential buyer starts a due diligence process – the lack of records and attention to correct procedures is a common reason cited for a reduction in selling price and the necessity to provide onerous warranties on a sale;
- Valuing the business properly is crucial to ensure you get maximum returns. Have a figure in mind as a starting point and then factor into this price how involved you would like to be post sale because it will have an impact on the perceived value of the business to a buyer;
- At the outset, appoint an advisor who understands your sector and business size and will be able to identify current and future potential problem areas you can work on. They will be able to dedicate time to this to free you up to build the business;
- There are a variety of ways a deal can be structured, with different tax implications, and it will be important to have good advice on the structuring of a sale to ensure you do not pay excessive tax.
Tax planning and the benefit of hindsight
Entrepreneurs who have already sold a business will agree that it is worth working with professional advisors and engaging them early in the process. Building a business is an important discipline, whilst selling can be a minefield. Both will require a huge amount of time and effort and it is valuable to have people who can provide the benefit of the experiences of other business owners and other deals.
To find out more about exit strategy tax planning and the tax implications of selling or buying a business, contact Lesley Stalker - [email protected].
We provide a free initial consultation on a no obligation basis.