Inform Magazine

SELLING YOUR BUSINESS? WHY TAX PLANNING IS SO IMPORTANT

03. ALIGN BUSINESS SALES TAX WITH YOUR COMPANY’S OBJECTIVES

hen the time comes to sell your business, what is the single biggest cost that will eat into your proceeds? Yes, that’s right, it’s tax.

Passing a family-owned business to the next generation can trigger prohibitive tax costs, but transactions can be structured to protect asset value and allow founder family members to realise their value in a tax efficient way. Also, a corporate group between the shareholders can be separated using a demerger process that removes the considerable tax costs which otherwise arise.

And it may not be only one type of tax either. The varieties which can apply to company sales are Capital Gains Tax, Corporation Tax, Income Tax, Inheritance Tax and Stamp Duty. Which of those will apply to your circumstances depends upon several factors, including the type of business you are selling and your taxable profit. Don’t worry, though. Relief is available. There is the potential to reduce your Capital Gains Tax liabilities through the Business Asset Disposable Relief and Deferral Relief claim processes. And, of course, you always have the option of seeking professional, expert advice. If you enlist the services of K3 Tax Advisory, a sister company of KBS Corporate, you have the option of receiving a pre-sale tax review that will clarify exactly where you stand regarding an aspect of a business transaction which can be difficult to understand. But at the outset of the entire process, in terms of making sure you are fully prepared for the tax considerations that inevitably need to be factored into your business sale, which measures should you take?

04. CONSIDER PLANS FOR THE SALE PROCEEDS

While it may be possible to accept share payments as a means of deferring tax payable on the sale proceeds, you should consider how much you will require each year for the life you and your family wish to lead following your business sale. You can also reduce your Inheritance Tax burden by putting gifts for beneficiaries into a trust.

Now let’s look at some of the specific tax considerations that can be relevant to a company sale.

CAPITAL GAINS TAX (CGT)

You may be required to pay CGT if you make a profit when selling your business. CGT is applied exclusively to the value of the profit made and not the total amount received. The assets you may need to pay tax on include:

HERE ARE FOUR TIPS:

01. PLAN AHEAD

• Land and property • Plant and machinery • Company shares • Registered trademarks and intellectual property

Pre-sale restructuring could mean less of your sale proceeds ends up being paid in tax, and the review K3 Tax Advisory can undertake before the transaction goes ahead can identify any tax risks.

Corporation Tax

02. REFINE YOUR EXIT STRATEGY

You will be required to pay Corporation Tax on profits for a business operating as one of the following: • Limited company • Foreign company with a UK-based office • Club, co-operative or other unincorporated association

The best time to structure for a tax-efficient business exit is before the sale is being negotiated. Advice may be needed on removing tax obstacles to a successful future disposal to provide the widest range of sale opportunities in the future.

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