You might be excited to sell your business for the promise of plenty of cash and, of course, a chance to start again. Unfortunately, there’s one problem you will face when selling your business: taxes. Taxes can easily get complex, even when you’re trying to sell a business. And for that reason, it is important to understand the things you can do and take advantage of to minimise your tax burden so that you don’t lose as much money as you would have if you didn’t take action.
That said, let’s talk about the various things you can do to lower your tax liability when selling a business:
1. Use the Capital Gains Tax Exemption
If you are a sole proprietor or partner in a business, you may be eligible for the Capital Gains Tax (CGT) exemption. This exemption allows you to exclude up to £1 million of gains from the sale of your business from your taxable income. To qualify, you must have owned the business for at least two years, and it must not be a part of a larger group of companies.
2. Use the Entrepreneurs’ Relief Scheme
If you are eligible for the Capital Gains Tax exemption, you may also be eligible for the Entrepreneurs’ Relief Scheme. This scheme allows you to pay a lower rate of CGT on the first £10 million of gains from the sale of your business. To qualify, you must have a 5% stake in the business and have been an active owner-manager for at least 12 months.
3. Consider a Tax-Free Sale
If you are planning to sell your business to a family member, you may be able to do so without incurring any CGT. This is known as a tax-free sale. To qualify, the family member must be a UK resident and must have owned the business for at least 12 months.
4. Use the Enterprise Investment Scheme
If you are selling shares in your business, you may be able to take advantage of the Enterprise Investment Scheme (EIS). This scheme allows you to sell your shares free of CGT if you reinvest the proceeds into another qualifying business. To qualify, the business must be a start-up or early-stage company, and you must hold at least a 30% stake in the company.
5. Use the Seed Enterprise Investment Scheme
If you are selling shares in a start-up or early-stage company, you may be able to take advantage of the Seed Enterprise Investment Scheme (SEIS). This scheme allows you to sell your shares free of CGT if you reinvest the proceeds into another qualifying business. To qualify, the business must be a start-up or early-stage company, and you must hold at least a 20% stake in the company.
Conclusion
Apart from these methods alone, there are many other things you can do to lower your tax burden during the process of selling your business. Either way, capitalising on these tips will ensure that by the end of it all, you come out on top. But of course, if you need help with taxes, we always recommend working with a tax accountant to help you understand the various tax circumstances that affect you as a person and as a business to ensure the best possible outcome!
YRF Accountants Ltd offers tax accountancy for small businesses, meeting all business and personal tax-related needs. If you are looking for accountants in Bolton to help with the process of selling your business, reach out to us today!