Tax On Selling A Business – The Changing Wind – Webinar

The Tax On Selling A Business And The Budget 

In this broadcast, Kevin Uphill and James Heathcote, director of private client advisory services at Lancaster Knox, discuss the current tax regime, potential 2021 budget and opportunities.

The webinar is available below, however, first lets talk about the ‘perfect’ business sale, the tax on selling a business, and all of the other factors. The ‘perfect’ business sale is ‘easy to define but hard to align’.

Despite the huge distraction caused by the COVID crisis, buyers are still highly active as they continue to refresh business models and look to create increased yields. There is plenty of money, but too few opportunities. Valuations for businesses have held despite the pandemic and post-lockdown models are continuing to drive deals.

Many sellers are also choosing to act with the prospect of more tax hikes on Capital Gains looming – possibly doubling in April 2021 (or sooner). If you are considering a business sale, now may be the time, regardless of COVID uncertainty.

The Tax On Selling A Business

We need to understand how the proceeds on the sale of your company shares will be taxed. In recent years, the tax regime has been very benign on the capital gains on such sales with 10% levied on the first £10 million per executive shareholder. In March 2020, this changed to 20% on the total sale, although the first £1 million remains at 10% assuming you qualify for Entrepreneurs Relief (Now Business Asset Disposal Relief).

With the requirement to raise revenue, CGT has been reviewed by the Office of Tax Simplification. Their report, which can be found on their website, suggests that CGT will be aligned with Income Tax at 40% with Entrepreneur’s Relief being replaced with a less generous retirement relief but what that percentage might be we do not as of yet know.

The tax on selling a business can and should be seriously thought over, whether or not you would prefer the 0% CGT and all of the benefits of an EOT is a serious question to ask yourself. However, if they do change the tax regime, now is the time to accelerate your ‘perfect’ sale’ and start your rewarding onward journey. A big hike in taxes will fundamentally change the way people think about business sales for good. In recent times, the success of the entrepreneur has been the ability to build a business to create maximum shareholder value and then cash-in, as more wealth can be achieved in this way than out of future income.

A change in taxes may discourage reinvestment for shareholder value, restrict growth, and make selling companies far less attractive. More likely it will simply drive executive shareholders offshore. Portugal, Italy, Guernsey and the Virgin Islands all have very favourable capital gains regimes – you need to live there for 5 years but can visit the UK for 90 days which under the 24-hour rule is almost 180 days.

If you are interested in learning more about the tax on selling a business and the general journey of a sale, you can read the accompanying article – ‘The “Perfect” Business Sale – Tax On Selling A Business’ – here.

Read our The ‘Perfect’ Business Sale article series to learn the top 5 steps to achieve the perfect sale.