Selling a business can be a complex and rewarding experience. However, it’s important to be aware of the tax implications involved before you make the sale. In the UK, there are two main types of tax that you may have to pay when you sell your business: Capital Gains Tax (CGT) and Corporation Tax.
Capital Gains Tax
CGT is a tax on the profit you make when you sell an asset that has increased in value since you bought it. In the case of a business, the assets that may be subject to CGT include:
- Land and buildings
- Plant and machinery
- Goodwill
- Intangible assets such as trademarks and patents
The amount of CGT you pay will depend on the amount of profit you make and your individual tax rate. For most assets, the current CGT rate is 20%. However, there is a special relief for entrepreneurs, which allows you to pay a lower rate of 10% on the first £1 million of gains.
Corporation Tax
If your business is a limited company, you may also have to pay Corporation Tax on the profit you make from the business sale. The current Corporation Tax rate is 19%. However, some reliefs may be available to you, such as the annual investment allowance and the small profits rate.
Other Tax Considerations
In addition to CGT and Corporation Tax, there are several other tax implications that you may need to consider when selling your business. These include:
- Stamp Duty Land Tax (SDLT) if you sell any land or buildings as part of the sale
- VAT if you sell any goods or services as part of the sale
- Income Tax if you receive any payments in the form of salary or dividends after the sale
Getting Professional Advice
It’s important to get professional advice from an accountant or tax advisor before you sell your business. They will be able to help you understand the tax implications involved and ensure that you pay the correct amount of tax.
Conclusion
Selling a business can be a great way to achieve financial security and freedom. However, it’s essential to be aware of the tax implications before making the sale. By working with an accountant or tax advisor, you can ensure that you pay the correct amount of tax and maximize your profits from the sale.
Here are some additional tips for minimizing your tax liability when selling a business in the UK:
- Plan ahead. The sooner you start planning for the sale, the more time you will have to minimize your tax liability.
- Get professional advice. An accountant or tax advisor can help you understand the tax implications of selling your business and ensure you take advantage of all the available reliefs.
- Structure the sale carefully. The way you structure the sale can have a significant impact on your tax liability. For example, you can reduce your CGT liability by selling your business to your own company.
- Consider selling assets separately. If you sell your business as a going concern, you will be liable to CGT on the entire profit. However, if you sell assets separately, you can reduce your CGT liability by selling assets that have not increased in value.
By following these tips, you can minimize your tax liability when selling your business in the UK and maximize your profits from the business sale.
