Tax
Enhancing and protecting value: Smart planning to optimise your tax position
Strategic exit planning
A lot of time and energy is invested in building a business so it’s important that you don’t lose value through a lack of tax planning. The tax landscape is complicated and with the October 2024 budget increasing capital gains tax and changing the application of Business Relief, entrepreneurs need to consider their position carefully. Maximising your tax strategy requires holistic planning that goes beyond the immediate sale event to encompass your long-term aspirations and wealth needs.
We explore the key considerations to help you achieve a tax-efficient sale and post-transaction structure that aligns with your personal goals.
Selling your business isn’t just about the headline price. It’s about smart tax planning that maximises your proceeds and preserves and protects your wealth for future generations.
HELEN RELF
Transaction Tax Partner
Preparing for tax-efficient business exits
The sale of a business can be structured in various ways. Often a sale of the shares is the most tax efficient structure, but the entity you sell will impact your tax position. Selling at holding company level will result in a capital gain for shareholders whilst selling a subsidiary can be achieved tax free.
With capital gains tax now at 24% and business asset disposal relief being eroded, we expect a rise in the number of disposals taking place at subsidiary level combined with the use of family and personal investment companies as holding vehicles for trading businesses. With strategic planning, these structures can facilitate a tax-free sale at the subsidiary level, allowing proceeds to be collected into the company vehicle for future investments.
The appropriate structure and tax outcome will depend on your long-term plans and personal circumstances. This is a complex area so it is crucial to structure family holding companies carefully to avoid immediate capital gains tax or inheritance tax liabilities. Entrepreneurs must carefully consider the ownership structure of their businesses ahead of a sale to ensure it aligns with their exit objectives. Changing a corporate structure can take time to agree upon, implement, and optimise for maximum tax efficiency.
Using the appropriate tax strategy and structure in advance can save you millions, ensuring your net proceeds are not unnecessarily eroded.
Inheritance tax planning
The capping of Business Relief exposes shareholders to a tax charge on illiquid assets in excess of £1million, significantly altering the landscape for the succession of family-owned businesses.
Rather than holding assets until death, lifetime planning is now essential to mitigate potentially large inheritance tax charges. The use of trusts should still be considered for long-term wealth protection but are likely to become more costly, necessitating earlier planning. It is crucial to review the position ahead of a transaction, assessing the potential liabilities, including future tax charges on the trust.
Strategic offshore tax planning
Relocating to a lower tax jurisdiction can be a strategic move for managing taxes on an exit and can result in significant tax savings compared to the UK. Some jurisdictions offer lower or even no capital gains tax which can be particularly advantageous given the significant values that are realised on the sale of a business. However, relocating to another jurisdiction is not without its challenges. It’s crucial to seek specialist advice on the practicalities of leaving the UK tax system, as well as advice on the tax regime of your chosen destination, to be able to make an informed decision.
Relocating outside the UK to a lower tax jurisdiction can be a strategic move for managing taxes on an exit, however it needs careful planning.
How we can help
Effective tax planning can potentially increase your consideration by millions of pounds. However, efficient tax strategies take time to implement, so it is important to plan to ensure you have the best options available.
Our global transaction tax specialists use their expertise and experience to help entrepreneurs maximise their net proceeds on both UK and cross-border transactions. If you would like to discuss your tax planning, please get in contact.
