When you decide to sell part (or all) of your business, navigating the complexities of Capital Gains Tax (CGT) effectively is essential.
CGT applies to the profit or ‘gains’ you realise from selling, gifting, or disposing of an asset that has increased in value.
The amount of CGT you’ll pay varies depending on your income and the asset in question, potentially taking a significant slice of the profit from your sale.
This is 10 per cent (or 18 per cent on residential property) for basic rate taxpayers and 20 per cent (or 24 per cent on residential property) for higher or additional rate taxpayers.
Previously, the higher rate on residential property was 28 per cent but was reduced in this year’s Spring Budget announcement.
However, we often tell our clients to explore a key relief that can mitigate this burden (more on this below).
Disposing of a business asset also involves considering the strategic and long-term financial repercussions.
Factors like the sale’s timing, the deal’s structure, and your future tax planning are vital in maximising your post-tax returns.
Using Business Asset Disposal Relief effectively
Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, allows you to reduce CGT on the sale of qualifying business assets, offering a reduced tax rate of 10 per cent on gains, up to a lifetime limit of £1 million.
To be eligible, you must have owned the business (or the assets, in the case of personal ownership used in the business) for at least two years up to the sale date.
Essentially, this relief aims to encourage entrepreneurship by making it financially easier for you to sell and either reinvest or retire.
To make the most of BADR, you need to plan carefully and understand the criteria for eligibility.
For example, as a shareholder, you need to own at least five per cent of the company’s shares and voting rights.
Planning the disposal of assets and, if necessary, restructuring ownership well ahead of a sale is also key to ensuring eligibility.
How your accountant can help
An experienced accountant can be your greatest ally in not just navigating CGT but in broader tax planning and financial strategy around the disposal of your business.
We can analyse your specific situation to determine how much CGT you may owe and identify strategies to minimise this liability.
With our in-depth understanding of tax laws, including BADR, we can tailor our advice to your unique circumstances, helping you to take full advantage of all available allowances and reliefs.
This includes timing the sale to your advantage, considering the impact on other taxes such as Inheritance Tax, and planning for your financial future post-sale.
By acting as a strategic partner throughout the disposal process, we ensure that your decisions not only serve your immediate financial interests but also align with your long-term goals.
For help selling a part, or all, of your business, please get in touch.
Email me at mark@mooret.co.uk or call our office on 01775 711333