Tax and reliefs When it comes to the financial side of selling your business, there are many things you need to understand: it won’t just be the sale proceeds you need to consider, but also, any tax implications from the route you choose to take. If you are planning to pass on the business to family members, including your children, to run after you leave, youwill largely be free from inheritance tax through the Business Property Relief youwill have built up. However, if your family will not be taking over the business and you need to sell to another party, your sale proceeds could have significant inheritance tax implications, particularly, if you are selling due to retirement or poor health. In this case, you should always discuss your options with your advisor, as there are ways in which you can mitigate capital gains and inheritance taxes by using some efficient investment methods with the sale proceeds. You should also consider Entrepreneurs’ Relief and the recent changes to it, before committing to any sale of the company. When selling shares, this relief allows for a 10% tax rate to be applied, reducing the amount of capital gains tax that you would otherwise be faced with. Importantly though, earlier this year, the lifetime allowance for Entrepreneurs’ Relief was reduced from £10 million to just £1 million, meaning owners of smaller companies are now at risk of exceeding the limit. Again, creating a strategy in advance and gaining the right advice are crucial when considering any qualifying criteria and the impact of different types of sale. On the upside, there is another solution which some companies use andmany more should consider – the Enterprise Management Incentive (EMI). This method is especially useful for companies looking to incentivise and retain their key talent, as any outlay you spend on setting up and running an EMI scheme is likely to be far less than the sizeable recruitment and job advertising fees needed for replacement staff. Under an EMI arrangement, key staff can be given share options without tax implications at the point of issue, giving relief to both the company and the employee. Upon sale of the shares, the proceeds then qualify for the lower 10% Entrepreneurial Relief rate, and bypass the usual 5% company ownership needed to qualify for this rate. There really are no downsides to setting up an EMI scheme if your intention is to move towards handing over your control of the business. They are a great way to reward loyalty among your staff and keep those vital employees who will be needed for the success of the company after your exit. If you think this could work for you, your advisors can look into your eligibility as not all industries qualify. They can then advise about taking your first steps.
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