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Financial > Tax Planning > Business Exit Strategies
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It is surprising how often business are bought rather than sold.
Many owners devote their time and energy to the daily operation of their business but have no clear idea how to bring their ownership to an end. The objectives will vary from one owner to another and thankfully, there are a wide range of strategies to provide the required solution.
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As a first step you will need to decide when you would like to withdraw from your business. This is unlikely to be an exact date as the new owners may need you to remain active within the business for a period to transfer knowledge or relationships. This hand-over period should be reflected in any decision you make about the timing of your departure.
You will need to groom your business before sale, and a good starting point is to compare its performance against the competition. If the results are not better than average today you will have time to change that before the sale begins.
A new owner could be found amongst your own workforce, your competitors, your customers or even your suppliers and the structure of the deal will vary depending upon your needs and those of the new owner. For example, it may be better for you to sell the entire business, but a transfer of all the historic responsibilities associated with your business might prove less attractive to the new owner, so the value is likely to be less than it would if you were simply selling the goodwill of your business.
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Careful consideration needs to be given to the structure of the deal if personal responsibility is to be brought to an end in a controlled manner, and an acceptable value is to be obtained after tax. The tax burden can be minimised through careful planning and in many cases avoided altogether. Please speak to Corrigans in complete confidence so that a unique approach can be devised to suit your needs.
In many cases the disposal of a business occurs in response to illness or death and so you should take out Critical Illness and ordinary Life Assurance to cover the loss to your family that would undoubtedly arise because the full market value would not be obtained for the business in those circumstances.
This entire topic suffered massive change when rules to be effective from 6th April 2008 were announced on 9th October 2007. The new rules affect every type of investment and withdraw concessions granted as far back as March 1982. Any disposal on or after 6th April 2008 will suffer a tax charge representing 18% of the difference between the original cost and the sale proceeds.
IT IS VITAL THAT YOU CONSIDER YOUR EXPOSURE TO CAPITAL GAINS TAX NOW TO AVOID NEEDLESS TAX BEYOND THE END OF THE 2007/2008 TAX YEAR.
An example of how great the impact is may help you to understand why action should be considered now. Mike has continued to operate the business founded by his Father in 1962 but he is now approaching retirement himself.
Under the current rules Mike would pay no tax at all on the sale price of £200,000 because a notional value is placed upon the business as at March 1982 using the same formula adopted today i.e. a multiple of the business turnover. The figure derived for March 1982 is increased in line with inflation until March 1998 and beyond that taper relief is also due before Mike takes advantage of his own personal allowance of £9,200.
If Mike leaves the sale of his business until 6th April 2008 or later he will suffer 18% tax on almost all of the sale proceeds. As the business was set up with just £100 of share capital and his annual allowance is assumed to remain at £9,200 capital gains tax will be payable on £190,700 at 18%.
This means that delay will cost Mike £34,326. As you can see, this is an important topic that should be taken into consideration as quickly as possible.
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