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Selling the trade – i.e. the operational assets owned by the business
Selling the company shares – i.e. selling your shares in the company to a new owner
Both routes have their own distinct tax outcomes. Having a good understanding of these implications will help you decide on your preferred route.
Deciding on the most tax-efficient route to a sale.
Let’s assume you’re running a business set up as a limited company. When you want to sell the business, the tax and other implications of selling either the trade or the company shares can be very different.
Selling the trade means selling any assets used by the business. This would mean your business premises, equipment, and any goodwill associated with the business. In this case, the vendor is the limited company.
Where the company shares are sold instead, the vendor is the shareholder, and the company continues as before.
From your viewpoint as the exiting owner, the primary tax consideration revolves around tax on any capital gain where the selling price is above the deductible cost.
In the case of a share sale, the sales proceeds less any associated cost (‘base cost’) will produce a taxable gain. In many cases, the base cost is close to zero – often just the nominal value of the shares.
Presuming the sale qualifies for Business Asset Disposal Relief (BADR), the first £1 million is taxed at 10% with the balance at 20%. Where BADR does not apply, any gain in the basic-rate band will be taxed at 10%, and the remainder at 20%. Where there are multiple shareholders, e.g. husband and wife, each is entitled to the £1 million BADR band.
If the trade (assets) are sold instead of selling the company shares, any gain is taxed at normal corporation tax rates. This will be between 19% and 25%, depending on overall profits. When the shareholders take any remaining surplus out of the company, either as dividends or on liquidation, if the company is no longer needed, there will be a further tax charge on the owners.
Unless there are specific reasons to the contrary, the seller will usually want to sell the company shares rather than the trade and assets.
Talk to us about a tax-efficient business sale.
It’s important to clearly understand which route has the most benefits and advantages for you. If pressure from the other party pushes you towards a sub-optimal choice, you should seek some appropriate adjustment to the selling price.
If you’re considering selling up, we can run you through the best way to plan this sale.
Visit our website or call 01785 248939 and transform your business this year.
