For many people the New Year prompts a review of their life goals. If you are wondering whether, or when, you should sell your business, a sensible first step is to form an outline plan for its disposal.
The sale of a successful trading company will generate a capital gain, which would normally be taxed at 20% after deduction of your annual exemption (currently £11,700, increasing to £12,000 for 2019/20).
Entrepreneurs’ Relief can reduce your tax rate to 10% on a gain of up to £10m. But there are now five conditions which you must meet for at least 12 months ending with the date of the sale:
• hold at least 5% of the ordinary share capital of the company
• hold at least 5% of the voting rights of the company
• be entitled to at least 5% of the distributable profits available to the equity holders
• be entitled to at least 5% of the assets available for distribution to equity holders on the winding up of the company
• be an employee, director or company secretary of the company or of another company in the same trading group
If you plan to sell your company after 5 April 2019 the above conditions will have to be met for at least 24 months ending with the date of sale.
When you step back gradually from your company, retiring from your role as director before you sell your shares, you may miss out on this valuable tax relief. Also, a plan to sell your company and carry on the business on a smaller scale as an individual or partnership can be caught by anti-avoidance legislation.
Action Point!
Allow at least 12 months to prepare to sell your company.
