Chancellor Called on to Extend Entrepreneurs Relief

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Under the current provisions of the government's Entrepreneurs Relief scheme, selling a company is subject to lower capital gains tax as long as the person selling meets certain conditions. Unfortunately, this scheme does not apply to all small businesses, particularly those who choose an asset sale rather than selling shares. Now the Chancellor is being called on to extend Entrepreneurs Relief to all small business owners so that asset sales are not left out.

As an expert in buying and selling businesses, I can confirm what a group of colleagues in Bolton wrote in a letter to the Chancellor regarding how asset sales are taxed. I can also confirm that older business owners looking to sell their companies in anticipation of retirement have a difficult choice between selling and being subject to high capital gains liabilities or simply closing up shop and walking away.

It is the opinion of many in our industry that when selling a company, tax implications should not be such that it is more lucrative to simply close. Yet that's what happens in far too many cases. Rather than entrepreneurs being able to pass on what they have built to the next generation, they close down to avoid higher taxes.

How the Current System Works

In their letter to the Chancellor, my Bolton colleagues explained that Entrepreneurs Relief applies only to limited company owners selling their shares. Under this scheme, sellers pay reduced capital gains tax of 10% on their portion of company profits. The amount the seller can claim is limited to £10 million. Still, that represents a tremendous tax advantage for selling shares in a limited company.

Since business owners choosing an asset sale are not selling shares, they don't enjoy the same 10% capital gains rate. Instead, they pay 28% on total taxable gains in excess of the basic tax rate band or 18% on gains below that band. Even at 18%, small business owners looking to sell are paying almost twice the capital gains tax by choosing an asset sale rather than selling shares. Selling a company can be a financial nightmare under this scenario.

Stimulate the Economy by Extending Relief

My colleagues in Bolton suggest that extending Entrepreneurs Relief to all small business sales would stimulate the economy by encouraging more transactions. The point is hard to argue. Furthermore, larger numbers of businesses that would otherwise cease operations would be transferred to new owners by way of sales, keeping them alive and contributing to their local economies.

If you are planning on selling your company in the future, it is important that you understand the tax implications of doing so. I am here to help you every step of the way. From valuing your business to limiting tax liabilities, I can help you make the most of your sale whether you choose to sell shares in a limited company or go the asset sale route. Contact me so we can sit down and talk.

Sources:

Bdaily – https://bdaily.co.uk/articles/2017/10/25/bolton-business-broker-calls-for-chancellor-to-extend-tax-benefit-to-small-businesses

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Author: Tim Luscombe

Hello, I'm Tim and I'm a specialist in corporate finance for the owner managed business. If you've been approached to sell your business, or you are thinking of buying a business or you just want to know what your business ...