Business Finance: Peter Harrup on maximising value when selling a business
- Credit: Archant
The economic recovery is finally underway and I expect positive forecasts in the Chancellor’s Autumn Statement tomorrow.
While there is much still to do to fix the Government’s finances, business owners are increasingly optimistic about future growth and many are planning to expand. Conversely, owners who had put exit or retirement plans on hold for the last few years can now dust those plans off as the market picks up and business values begin to rise.
In planning to sell a business there are many issues to consider. For example, if there is a property involved, is it owned by the company or privately? Will a potential business purchaser want to acquire the property or is it marginal to profit streams? Addressing these issues and putting appropriate plans in place can help to reduce both Capital Gains Tax (CGT) on sale and your Inheritance Tax (IHT) exposure.
As the economy picks up, the grass may begin to look greener elsewhere to your key staff. It may be wise to update or implement your incentive arrangements to ensure they stay with you and continue to increase the value of your business. Enterprise management incentives or other share schemes are always worth considering.
Maximising the value you get from selling means minimising the tax paid on the sale. If you qualify for Entrepreneurs’ Relief (ER) on the sale, the first £10million of the gain is only liable to tax at 10% (rather than up to 28%) provided you have not made a qualifying disposal before. Other family members who work in the business and have held at least 5% of the shares for 12 months prior to a sale can also qualify for ER, so organising family shareholdings sensibly in advance can save a considerable amount of CGT.
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Planning for IHT should not be forgotten as, in many instances, you will be selling a business that qualifies for 100% business property relief for cash that is subject to IHT in full. And it is a good idea to boost your pension fund before the sale – if only to extract surplus cash tax-efficiently.
These and many other issues mean that it is never too soon to start preparing your business for a tax-efficient sale. If there is a post-recession growth spurt, business values and asset prices could increase rapidly and a tempting offer may appear out of the blue. If you have already put things in order, you can act quickly on a surprise offer without triggering substantial tax problems.
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: : Peter Harrup is a partner at the Ipswich office of BDO LLP.