I love seeing the success of a business realised by the owners who have worked so hard in it and I have enjoyed advising on hundreds of transactions over the years. There is so much that I could write on this topic so I am going to break it down into a series of articles over the coming weeks covering different tax aspects.
Let’s start with a common question I am asked – how much tax will I have to pay on selling my shares? Well, like any good tax adviser, I respond with “it depends!”:
• If you qualify for Business Asset Disposal Relief (previously Entrepreneurs’ Relief) then it’s 10% on your first £1m (which is a lifetime limit).
• If you originally invested under EIS or Seed EIS then it could be 0% if you’ve owned the shares for the qualifying period of 3 years and claimed the original relief.
• Alternatively, if you didn’t qualify for EIS, you might qualify for Investor’s Relief, which would be a 10% tax rate on up to £10m (which is another lifetime limit).
• If you own any shares via a company then you might benefit from Substantial Shareholdings Exemption, where there is no tax to pay in the company but you need to consider how you extract the proceeds.
• And if you sell the company to an Employee Ownership Trust then it’s an unbelievable 0%.
• Anything else and it’s likely to be at the main rate of 20%.
• Be careful though, because if you get things wrong (for example, selling to connected persons or proceeds being linked to your ongoing employment) then it could be as high as 39.35% or 47%!
It is always advisable to plan ahead wherever possible so that you can minimise your tax liability on exit. For example, you might be able to use family members’ allowances and lifetime limits or organise your affairs to benefit from certain tax reliefs or deferrals.
If you are considering selling your business and want to minimise your tax liabilities then please do not hesitate to get in touch.
