When it comes to selling a business, there are so many factors to consider and potential obstacles to plan for, making it a potentially stressful and complex process.
One aspect of selling that you’re bound to be particularly preoccupied with is the question of taxes – most notably, capital gains tax and corporation tax.
Now, the amount of taxes you will pay when you sell your business will depend on several factors, such as the type of business entity you operate, and the method you use as your exit strategy. The good news is, there are tax reliefs available for you to consider, but, of course, they come with specific conditions.
Keen to clear up any confusion you may have and gain a more in-depth understanding of business sales and the relevant taxes? Never fear – we’ve compiled this simple but comprehensive guide to demystify the issue of taxation when you sell your company.
Shall we begin?
What taxes apply when you sell your business?
First things first, let’s take a quick look at the three types of taxes that you’ll need to be familiar with when it comes time to sell. These are:
Capital Gains Tax
Business owners who are thinking about exiting their company will need to think carefully about the prospect of capital gains tax, especially since the amount they will be charged has risen significantly following the Autumn Budget of 2024.
Where basic-rate taxpayers used to have to pay 10% CGT, now they will be required to pay 18%.
As for higher-rate and additional taxpayers, following the Budget, they can now expect to pay 24% when they sell their business, instead of the 20% they used to be charged.
The current tax-free allowance for CGT stands at £3000.
While there’s no denying the financial impact that CGT can have on business owners who have decided to sell up, the good news is that you might be able to take advantage of business asset disposal relief. This tax relief can potentially reduce your CGT percentage to 10%, if the right conditions are in place. However, from 6 April 2025 this will increase to 14% and the following tax year it is set to rise again by another 4%.
To be eligible for business asset disposal relief, you need to fit these criteria:
- You are an individual selling shares in your company, or the business itself
- You’re a director or employer selling shares in a business that employs you
- You’re a sole trader or a business partner who’s owned the business for at least 2 years
Corporation Tax
If you own a limited company and you’ve decided to sell some – or all – of the business’s assets, then you will need to pay corporation tax.
Corporation tax rates will differ according to your company’s profits.
If your profits are under £50,000, the corporation tax rate is 19%.
If your profits are up to £250,000, the tax rate is 26.5%.
If your profits are above £250,000, the tax rate will be 25%.
The good news is that, as with CGT, you can potentially reduce the amount of corporation tax you have to pay by claiming for business asset disposal relief.
Exit strategies to consider
While selling a business may seem like a daunting prospect, the good news is that you have several possible options available to you. This means you can choose the exit strategy that best suits your unique requirements.
The exit options you can consider are:
A merger or acquisition
One commonly used method of selling your business is to opt for a merger or an acquisition.
A merger is when two or more businesses come together to form a new entity with combined assets, while in an acquisition one business purchases another outright. When it comes to taxes, the amount you pay will depend on several factors, including what kind of deal structure you want to go for – e.g. a straightforward cash transaction or perhaps an exchange of shares.
If you do decide to opt for an acquisition, our friendly and experienced team at Harris Acquire can take you seamlessly through the M&A process, all the way to deal completion. We will handle every stage of the transaction, from verifying potential buyers to helping with negotiations and due diligence.
Share sale
If you are keen to take advantage of business asset disposal relief then you might want to consider a share sale, as you could be eligible to claim if you meet the right conditions.
When you embark on a share sale, your buyer takes over the entire company, including its assets, liabilities, ongoing contracts, customers and suppliers.
Asset sale
As the name suggests, an asset sale is when you sell off certain assets and rights to your company, with the buyer being able to pick and choose which elements of your business they would like to purchase.
This form of sale can be complex, although the due diligence phase typically takes less time, and it could throw up potential obstacles. For instance, your customers may not be keen and may not wish to have their contracts transferred to the buyer. What’s more, you will still be responsible for your obligations and for the company’s liabilities.
Need help selling your business?
As you can see, exiting your company can be complicated, especially when it comes to tax. However, there are options you can consider and possible tax reliefs available, allowing you to craft an exit strategy that will work best for both you and your business.
If you have weighed up your options and you’re keen to embark on the acquisition route, whereby another company buys your business, don’t hesitate to get in touch. Here at Harris Acquire, we specialise in helping buyers and sellers achieve the right deal with as little hassle as possible, and we’d be happy to help you sell your business.
To find out more about our services, send an email to Hello@harrisacquire.com or give us a call at 01926 757100.
