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Accountants & Tax Advisors
for Surrey & South London

 

Maximise capital gains and minimise tax when you exit your business

Entrepreneurs’ relief is a very generous and useful relief for business owners, especially when you compare the resulting tax rate of 10% with the top rate of 45% income tax. Because sellers benefit from a tax rate of 10% on the first £10 million of gains on business sales with the remainder being taxed at 28%, it remains a very attractive proposition for entrepreneurs to groom a business for future sale.

More than ever, due to the qualifying criteria to qualify for 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

To ensure your business attracts the maximum value on sale:

  • Have a clear view of your goals 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 completed accurately and make sure your company secretarial paperwork is up to date – this will save problems later
  • A good set of records are key when a potential buyer starts the due diligence process – a lack of records and compliance is a common reason cited for a reduction in the selling price of a business and an increase in warranties
  • Valuing the business properly is crucial to getting the best return. 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 business 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.

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