If you’ve worked for years growing your business, there may come a time when you want to step back and sell it

to someone else.

This can be a moment to enjoy the rewards of your endeavour over the years.

However, selling a business does come with tax implications you ought to be aware of.

With careful planning, the tax on selling a business can be mitigated. 

What are the tax implications of selling a business and how can they be minimised while remaining compliant?

How to avoid tax when selling a business?

While it’s rare to avoid all tax obligations when selling a business, it’s possible to mitigate the amount of tax you pay.

Working with an experienced tax and business finance specialist can help you to legally reduce your tax liabilities.

What tax do you pay when selling a business?

The tax implications of selling your business vary depending on several factors, including its structure, the nature of the assets being sold, as well as the profits or gains realised from a sale.

Some of the key taxes that could be liable include:

Capital Gains Tax (CGT)

When you sell or dispose of a business, or business assets, you could be liable for CGT on gains that made from the sale.

Liability is calculated based on the difference between the proceeds of the sale and the original price paid for the assets at their time of purchase.

If the market value of the assets was higher than the price paid, then this figure may be used.

Corporation Tax

If you’re selling a limited company, you may be liable for Corporation Tax on any profits or gains realised from the sale.

Corporation Tax is levied on the company’s profits, which can include gains from the sale of assets. The rate of Corporation Tax paid is calculated according to the company’s profit levels and tax status.

Value Added Tax (VAT)

The sale of a business as a going concern may be exempt from VAT, provided certain conditions have been met.

If the sale includes assets that are subject to VAT, such as property or inventory, VAT may be applied to those assets.

It’s essential the potential VAT implications of a sale are considered beforehand.

Do you pay capital gains tax when you sell a limited company?

If you sell a limited company and make a capital gain on the sale, you may then be liable for Capital Gains Tax (CGT).

This is calculated on the gain made from selling the shares in the company, rather than on the assets that are owned by the company itself.

A number of reliefs and exemptions may be applied to reduce the overall CGT liability.

Business Asset Disposal Relief

Business Asset Disposal Relief can reduce the rate of CGT to 10 per cent on qualifying gains, subject to certain conditions being met. 

These include holding a minimum percentage of shares and length of ownership.

A business tax specialist will be able to advise about the qualifying criteria, eligibility, and likely level of relief.

Rollover Relief

Rollover Relief allows individuals or companies to defer any CGT on gains made from the sale of certain business assets if the proceeds are then reinvested in qualifying replacement assets.

This acts as a tax deferral benefit, allowing CGT to be deferred until the replacement assets are subsequently sold.

Gift Hold-Over Relief

If shares are gifted or sold to the company at less than their market value, or if assets are transferred to a company in exchange for shares, then you may be able to claim Gift Hold-Over Relief. 

This means that any CGT responsibilities transfer to the recipient when they dispose of their assets in the future.

Navigating tax responsibilities when selling a business

Understanding tax relief when selling a business can be complicated, and tax implications vary considerably depending on the circumstances.

Professional tax advice from qualified tax advisors can ensure you successfully navigate the sale of your business, using tax-efficient strategies to mitigate your overall liabilities.

At DAAFL, our expert team can provide comprehensive tax advice and planning services for small businesses, whatever stage you are at.

Our specialist small business tax services can reduce your tax burden through sensible business tax planning, taking advantage of any allowances and reliefs while ensuring you remain compliant going forward.

Contact us for further advice on the tax implications of selling your business.