Thinking of selling up? Make sure you do what’s right for your business.

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Thinking of selling up? Make sure you do what’s right for your business.

When you finally decide to sell a business you’ve built, it’s a big decision – both emotionally and financially. You will have invested a lot of time and hard work over many years and you’ll naturally want to get the best possible return. That means thinking in advance about tax efficiency.

Of course, it’s hard to know when the exit opportunity is going to present itself, but it’s good to think about your company structure and shareholding profile in advance.So what exactly should you keep in mind?

ER – Entrepreneur’s Relief

This allows the first £10m of gains for individual sellers to be taxed at 10%, provided you meet certain conditions. It’s important to take professional advice to ensure that you’re compliant.

SSE – Substantial Shareholding Exemption

This allows corporate sellers an exemption from Corporation Tax on Capital Gains released on the disposal of shares in trading companies. Again, a number of conditions must be met.

Earn-outs

If the seller receives additional payment on the condition of the company performing well in the future, this is referred to as an ‘earn-out’. There are Capital Gains Tax implications, so once again it’s essential you discuss your options carefully with an accountant.

Another area to consider is tax-efficient share schemes that encourage your management team to stay and help with the transition – something that will make you particularly attractive to many purchasers. It is important, however, to make careful choices over the timing of such arrangements.

It’s never too early to start considering the issues involved and ask your professional adviser to begin conducting the diligence checks that are so vital pre-sale.

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