Choosing to sell your business is one of the biggest decisions an entrepreneur will ever have to make. After spending years – often decades – building something from the ground up, letting go can understandably be incredibly difficult.
“It’s quite an emotional adjustment,” says Simon Martin, Chartered Financial Planner at St. James’s Place Wealth Management. “You’ve poured your heart and soul into growing and running a business, then all of a sudden it’s sold. After working possibly 60-70 hours a week, you’ve now to fill your time with something else.”
With such a big change coming to your professional and personal life, it’s essential to plan ahead. While getting the sale over the line might seem like the most pressing concern, failure to consider the tax implications of the sale might mean you’re unable to fully enjoy the fruits of your hard work.
Moreover, it’s important to realise that having spent almost every waking moment thinking about the business, you will now have a significant amount of time on your hands. While some entrepreneurs will dive straight back in and start another business, others will choose pursuits such as philanthropy or angel investing. Others might wish to take a break to enjoy their free time.
Martin says: “If you’ve sold a business for a good amount of money, you’ve probably got an opportunity to have a lot of flexibility and freedom in how you spend your time, which many people don’t have.”
Whatever life after an exit holds for you, here are some of the main things to consider when approaching a business sale.
Business Asset Disposal Relief
Formerly known as Entrepreneurs’ Relief, this allows the first £1 million of proceeds from a sale to be taxed at 10% rather than the 20% rate of Capital Gains Tax. A spouse or civil partner can also claim the same relief under certain conditions, meaning proceeds of up to £2 million can be taxed at the lower rate. Seek professional advice ahead of a sale to see whether you qualify.
Income after the sale
Depending on your plans, you should consider how much you require each year for the life you and your family wish to lead, always bearing in mind current taxes such as Income Tax and Capital Gains Tax, as well as future taxes such as Inheritance Tax (IHT). Again, a St. James’s Place adviser can talk you through options such as pensions, an IHT-efficient trust that pays an income, ISAs and other tax wrappers.
Martin says: “Ultimately, it’s your net income that you’ve got to spend and the more tax-efficient your income is, the less of your capital you’re going to use to create that income.”
Business Relief
A trading business typically qualifies for 100% Business Relief and can therefore be passed on free from IHT upon the death of the owner. Once you sell the business, however, you hold cash and therefore lose the exemption. IHT is charged at 40% on the portion of your estate above £325,000, so it makes sense to find tax-efficient ways to provide an income.
After the sale, owners have 36 months to re-invest some or all the proceeds into other Business Relief-qualifying investments and assets and recover the IHT exemption.
Trusts
To reduce the IHT burden after a sale, you can put gifts for beneficiaries into a trust. If you live for seven years after doing so, the gift will be free of IHT. Trusts are a good way to protect your business sale proceeds from adverse events and can be set up for friends or family. The trustee makes the decisions about what gets paid out and to whom.
Budgets and spending reviews
As the economy emerges from the coronavirus crisis, it’s likely that the tax system will continue to change as the government seeks to raise revenue to pay down the national debt. Keep an eye on budget and spending-review announcements and discuss what it means for your finances with an expert.
Take advice
If you plan to sell your business, an adviser from St. James’s Place can help you make the decisions that are most beneficial for you and your family’s finances.
Choosing to sell your business is one of the biggest decisions an entrepreneur will ever have to make. After spending years – often decades – building something from the ground up, letting go can understandably be incredibly difficult.
“It’s quite an emotional adjustment,” says Simon Martin, Chartered Financial Planner at St. James’s Place Wealth Management. “You’ve poured your heart and soul into growing and running a business, then all of a sudden it’s sold. After working possibly 60-70 hours a week, you’ve now to fill your time with something else.”
With such a big change coming to your professional and personal life, it’s essential to plan ahead. While getting the sale over the line might seem like the most pressing concern, failure to consider the tax implications of the sale might mean you’re unable to fully enjoy the fruits of your hard work.
Moreover, it’s important to realise that having spent almost every waking moment thinking about the business, you will now have a significant amount of time on your hands. While some entrepreneurs will dive straight back in and start another business, others will choose pursuits such as philanthropy or angel investing. Others might wish to take a break to enjoy their free time.
Martin says: “If you’ve sold a business for a good amount of money, you’ve probably got an opportunity to have a lot of flexibility and freedom in how you spend your time, which many people don’t have.”
Whatever life after an exit holds for you, here are some of the main things to consider when approaching a business sale.
Business Asset Disposal Relief
Formerly known as Entrepreneurs’ Relief, this allows the first £1 million of proceeds from a sale to be taxed at 10% rather than the 20% rate of Capital Gains Tax. A spouse or civil partner can also claim the same relief under certain conditions, meaning proceeds of up to £2 million can be taxed at the lower rate. Seek professional advice ahead of a sale to see whether you qualify.
Income after the sale
Depending on your plans, you should consider how much you require each year for the life you and your family wish to lead, always bearing in mind current taxes such as Income Tax and Capital Gains Tax, as well as future taxes such as Inheritance Tax (IHT). Again, a St. James’s Place adviser can talk you through options such as pensions, an IHT-efficient trust that pays an income, ISAs and other tax wrappers.
Martin says: “Ultimately, it’s your net income that you’ve got to spend and the more tax-efficient your income is, the less of your capital you’re going to use to create that income.”
Business Relief
A trading business typically qualifies for 100% Business Relief and can therefore be passed on free from IHT upon the death of the owner. Once you sell the business, however, you hold cash and therefore lose the exemption. IHT is charged at 40% on the portion of your estate above £325,000, so it makes sense to find tax-efficient ways to provide an income.
After the sale, owners have 36 months to re-invest some or all the proceeds into other Business Relief-qualifying investments and assets and recover the IHT exemption.
Trusts
To reduce the IHT burden after a sale, you can put gifts for beneficiaries into a trust. If you live for seven years after doing so, the gift will be free of IHT. Trusts are a good way to protect your business sale proceeds from adverse events and can be set up for friends or family. The trustee makes the decisions about what gets paid out and to whom.
Budgets and spending reviews
As the economy emerges from the coronavirus crisis, it’s likely that the tax system will continue to change as the government seeks to raise revenue to pay down the national debt. Keep an eye on budget and spending-review announcements and discuss what it means for your finances with an expert.
Take advice
If you plan to sell your business, an adviser from St. James’s Place can help you make the decisions that are most beneficial for you and your family’s finances.
Choosing to sell your business is one of the biggest decisions an entrepreneur will ever have to make. After spending years – often decades – building something from the ground up, letting go can understandably be incredibly difficult.
“It’s quite an emotional adjustment,” says Simon Martin, Chartered Financial Planner at St. James’s Place Wealth Management. “You’ve poured your heart and soul into growing and running a business, then all of a sudden it’s sold. After working possibly 60-70 hours a week, you’ve now to fill your time with something else.”
With such a big change coming to your professional and personal life, it’s essential to plan ahead. While getting the sale over the line might seem like the most pressing concern, failure to consider the tax implications of the sale might mean you’re unable to fully enjoy the fruits of your hard work.
Moreover, it’s important to realise that having spent almost every waking moment thinking about the business, you will now have a significant amount of time on your hands. While some entrepreneurs will dive straight back in and start another business, others will choose pursuits such as philanthropy or angel investing. Others might wish to take a break to enjoy their free time.
Martin says: “If you’ve sold a business for a good amount of money, you’ve probably got an opportunity to have a lot of flexibility and freedom in how you spend your time, which many people don’t have.”
Whatever life after an exit holds for you, here are some of the main things to consider when approaching a business sale.
Business Asset Disposal Relief
Formerly known as Entrepreneurs’ Relief, this allows the first £1 million of proceeds from a sale to be taxed at 10% rather than the 20% rate of Capital Gains Tax. A spouse or civil partner can also claim the same relief under certain conditions, meaning proceeds of up to £2 million can be taxed at the lower rate. Seek professional advice ahead of a sale to see whether you qualify.
Income after the sale
Depending on your plans, you should consider how much you require each year for the life you and your family wish to lead, always bearing in mind current taxes such as Income Tax and Capital Gains Tax, as well as future taxes such as Inheritance Tax (IHT). Again, a St. James’s Place adviser can talk you through options such as pensions, an IHT-efficient trust that pays an income, ISAs and other tax wrappers.
Martin says: “Ultimately, it’s your net income that you’ve got to spend and the more tax-efficient your income is, the less of your capital you’re going to use to create that income.”
Business Relief
A trading business typically qualifies for 100% Business Relief and can therefore be passed on free from IHT upon the death of the owner. Once you sell the business, however, you hold cash and therefore lose the exemption. IHT is charged at 40% on the portion of your estate above £325,000, so it makes sense to find tax-efficient ways to provide an income.
After the sale, owners have 36 months to re-invest some or all the proceeds into other Business Relief-qualifying investments and assets and recover the IHT exemption.
Trusts
To reduce the IHT burden after a sale, you can put gifts for beneficiaries into a trust. If you live for seven years after doing so, the gift will be free of IHT. Trusts are a good way to protect your business sale proceeds from adverse events and can be set up for friends or family. The trustee makes the decisions about what gets paid out and to whom.
Budgets and spending reviews
As the economy emerges from the coronavirus crisis, it’s likely that the tax system will continue to change as the government seeks to raise revenue to pay down the national debt. Keep an eye on budget and spending-review announcements and discuss what it means for your finances with an expert.
Take advice
If you plan to sell your business, an adviser from St. James’s Place can help you make the decisions that are most beneficial for you and your family’s finances.