How to lower tax on a business sale.
If you own a business and are looking to sell now or at some time in the future, it is important you consider tax early on in the process.
Business sales can have a variety of elements to them such as:
- cash being received on signing the deal
- cash received over time (known as 'deferred consideration')
- loan notes received
- earn-outs or
- a stake in the buying company
All of these have different tax rules and potentially different tax rates. That is why good tax planning can make a huge difference. It can affect the after-tax cash received from selling a business and save thousands or sometimes millions of pounds of tax.
There are a variety of reliefs that taxpayers can use to lower tax when selling a business such as Business Asset Disposal Relief (10% tax rate), substantial shareholders exemptions (0% tax rate) or deferral provisions which can create a 0% tax rate on sale.
Who does this affect?
Any individual business owner (sole trader, partnership or company) that may sell in the future or is looking to sell.
Even if selling isn’t on the agenda at present, seeking good tax advice so the business is structured well could see huge tax savings if a future sale opportunity arises. The key is to think about these matters early, but even if you don’t there will still be ways to lower the tax impact of a sale at the last minute.
What is at stake?
Getting proper tax advice in this area can save a huge amount of money. In some cases this can mean moving tax rates from 47% to 10% or even lower (perhaps 0%).
The key message is this: good tax advice and planning will allow business owners to keep more of their hard-earned money when they sell their business.
What should I do next?
If you would like to save tax when selling your business, please contact Ian Timms, our Head of Business Tax.
First published 13 November 2020
Last Updated 13 November 2020
13 November 2020
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