What Are The Tax Implications For Selling A Business

A Share Sale or An Asset Sale?

When you sell a business, you have a choice. You either sell the Shares of a business, or you sell the Assets of the business.

A share sale will normally include everything ‘as is’, including assets AND liabilities, whereas an Asset sale is just the Assets of the business, it’s name, and its goodwill.  Most business owners will favour a share sale rather than an asset sale.  With an Asset sale, the seller will be responsible for dealing with the legal entity of the company that remains post sale.  There are other methods to achieving a deal, some of these being share-swaps, mergers & consolidations.


Entrepreneurs Relief

As far as tax is concerned, one of the major areas to consider is whether you’ll qualify for entrepreneurs relief. Entrepreneurs relief means that you’ll only pay 10% capital gains tax on qualifying gains.  Relief can be claimed by the Directors, Sole traders & Partners, as well as employees of the business.  Up to £10m of relief can be claimed during your lifetime.  An important point to consider, is that many tax professionals believe that Entrepreneurs relief will be altered in the future, which could mean a reduction in how much, when, and if you can claim it at all.  For anyone considering a sale, it would always be advisable to pursue this route sooner rather than later to avoid disappointment.


Qualifying for Entrepreneurs Relief

To qualify for entrepreneurs relief, it will normally apply if you sell any of the following:

  • The Share Ownership & Voting rights of at least 5% in the company

  • Any Assets you borrowed to the Company

 

If choosing to sell all, or part of the business, the following points must apply:-

  • The business has been owned for at least 12 months before the date you sell it

  • The business assets are sold within 3 years after selling the business

 

If selling shares, all the following apply for at least 12 months before the sale completes:-

  • Must have 5% or more of the shares and voting rights in the company

  • Must be an employee or director of the company

  • The main activity of the company must be within trading, rather than non-trading activities such as investment

 

If selling assets you borrowed to the business, all the following need apply:-

  • Must have sold your shares in the Company

  • Must have owned the assets, but let your Company use them for at least 12 months up until the business or shares were sold


Remember that if selling a business, tax rules change all of the time, and vary according to geography in the world.  Suitable advice should always be sought.


We hope you’ve received some value from this article, and some information that you can use to move forward toward your vision.

 

If you’re confident that selling your business is the way to go, or perhaps you’re undecided, it’s important to consider the significant amount of effort and resource you’ll need to make it happen.  It’s a full time job. - The time investment alone is enough to put anyone off.  So imagine for just a minute, that you didn’t need to do all of this work.  What if this could be done over the next 3 - 5 years (by someone else).  Everything we’ve listed in this article, is what you’d need to do, if you were selling through a business broker, or direct to a buyer.


Unlike other private equity firms, our focus is on growing businesses at the smaller end of the market.  We’ve worked in, and grown our own businesses in the exact same fields you work today.  We’ve spent years coaching and supporting small businesses just like yours, developing their teams, and helping them to grow, but now, we’d like to help you.  


We have a solution for business owners that need to sell their business immediately, or for those who want to stick around for a few years.

If you’re considering the options to grow or sell over the next five years, read more about how we're helping others just like you. Click here to read about our unique approach to helping you get what you want with the YokeFormula™ for your business.

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