Read time: 3 min read
Most successful small-business owners eventually face two key decisions – how to exit their business and what to do next. While many choose to retire on the proceeds, others see the sale as a stepping stone to other exciting endeavours and the next stage of their careers.
Some may start another company, using the skills and contacts from their first business to build something new. Others will focus on investments, philanthropy or mentoring the next generation of entrepreneurs.
Selling your business is a great achievement, and you might come into a substantial sum of money. But after years of paying yourself through your company, it can require careful planning and investment to ensure you can achieve your goals and live the life you and your family want.
What happens when you sell a business?
After selling up, you may justifiably want to take some time out to pursue non-work ambitions, such as writing a novel, travelling the world or starting a new hobby.
But most exiting owners will also likely feel they still have much to offer society or the business world. There may still be things you want to achieve in the business you’re selling – if so, you could talk to the new owner about retaining your skills and knowledge for a transitional period or longer.
You might find staying on in the firm with a comfortable salary and benefits is a good way to carry on the work you enjoy, while improving your work-life balance and removing some of the stress and responsibility of owning it. After all, who knows your business better than you? If you do stay on, you need to understand that someone else is making the big calls – not you. You must be mentally prepared to relinquish that control and to trust and believe in the new owners’ plans. Perhaps you could take up a smaller role as, say, a non-executive director, mentor or ambassador for the company.
The alternative is to make a clean break to concentrate on another role, or perhaps start a consultancy business. Or you may want to do something completely different that makes use of your skills, such as writing a work-related book, becoming a lecturer or setting up a network to help younger entrepreneurs. Yet another option is to become an investor in young businesses, say as an angel investor – or just use your business savvy to manage your investment portfolio for optimal retirement income.
Whichever path you take, you’re likely to benefit hugely from the lessons you’ve learnt in your first business.
How is the sale of a small business taxed?
What you do after selling your business will also depend on the financial side of the deal – whether you sell the whole company or just a part; whether family members are involved; how much you receive, and whether that’s in the form of a lump sum or buy-out over several years.
You need to be aware of the tax implications of selling a business, as explained below, especially if you’re about to receive a substantial sum. A conversation with us will give you a better understanding of what you’re likely to encounter. The sooner you seek advice, the better, as some planning can take time to implement.
Business Asset Disposal Relief
If you make a gain from selling your business, you must pay Capital Gains Tax (CGT). But Business Asset Disposal Relief (BADR) - formerly known as Entrepreneurs’ Relief - allows the first £1 million of proceeds from the sale of a trading business to be taxed at 10% rather than the usual CGT rate of 20%. To qualify, you must have been a sole trader or business partner and owned the business for two years or more.
Business Relief
A trading business typically qualifies for 100% Business Relief from Inheritance Tax (IHT), so it can be passed on free from IHT on the death of the owner. But once you sell the business, you hold cash and lose this exemption. Subject to other allowances being available, IHT is charged at 40% on the portion of your estate above £325,000, so this can be an important consideration in the sale.
Seek advice
When selling a business and considering your next steps, talk to us. We can provide guidance on the tax considerations and offer advice on your future options.
Read time: 3 min read
Most successful small-business owners eventually face two key decisions – how to exit their business and what to do next. While many choose to retire on the proceeds, others see the sale as a stepping stone to other exciting endeavours and the next stage of their careers.
Some may start another company, using the skills and contacts from their first business to build something new. Others will focus on investments, philanthropy or mentoring the next generation of entrepreneurs.
Selling your business is a great achievement, and you might come into a substantial sum of money. But after years of paying yourself through your company, it can require careful planning and investment to ensure you can achieve your goals and live the life you and your family want.
What happens when you sell a business?
After selling up, you may justifiably want to take some time out to pursue non-work ambitions, such as writing a novel, travelling the world or starting a new hobby.
But most exiting owners will also likely feel they still have much to offer society or the business world. There may still be things you want to achieve in the business you’re selling – if so, you could talk to the new owner about retaining your skills and knowledge for a transitional period or longer.
You might find staying on in the firm with a comfortable salary and benefits is a good way to carry on the work you enjoy, while improving your work-life balance and removing some of the stress and responsibility of owning it. After all, who knows your business better than you? If you do stay on, you need to understand that someone else is making the big calls – not you. You must be mentally prepared to relinquish that control and to trust and believe in the new owners’ plans. Perhaps you could take up a smaller role as, say, a non-executive director, mentor or ambassador for the company.
The alternative is to make a clean break to concentrate on another role, or perhaps start a consultancy business. Or you may want to do something completely different that makes use of your skills, such as writing a work-related book, becoming a lecturer or setting up a network to help younger entrepreneurs. Yet another option is to become an investor in young businesses, say as an angel investor – or just use your business savvy to manage your investment portfolio for optimal retirement income.
Whichever path you take, you’re likely to benefit hugely from the lessons you’ve learnt in your first business.
How is the sale of a small business taxed?
What you do after selling your business will also depend on the financial side of the deal – whether you sell the whole company or just a part; whether family members are involved; how much you receive, and whether that’s in the form of a lump sum or buy-out over several years.
You need to be aware of the tax implications of selling a business, as explained below, especially if you’re about to receive a substantial sum. A conversation with us will give you a better understanding of what you’re likely to encounter. The sooner you seek advice, the better, as some planning can take time to implement.
Business Asset Disposal Relief
If you make a gain from selling your business, you must pay Capital Gains Tax (CGT). But Business Asset Disposal Relief (BADR) - formerly known as Entrepreneurs’ Relief - allows the first £1 million of proceeds from the sale of a trading business to be taxed at 10% rather than the usual CGT rate of 20%. To qualify, you must have been a sole trader or business partner and owned the business for two years or more.
Business Relief
A trading business typically qualifies for 100% Business Relief from Inheritance Tax (IHT), so it can be passed on free from IHT on the death of the owner. But once you sell the business, you hold cash and lose this exemption. Subject to other allowances being available, IHT is charged at 40% on the portion of your estate above £325,000, so this can be an important consideration in the sale.
Seek advice
When selling a business and considering your next steps, talk to us. We can provide guidance on the tax considerations and offer advice on your future options.
Read time: 3 min read
Most successful small-business owners eventually face two key decisions – how to exit their business and what to do next. While many choose to retire on the proceeds, others see the sale as a stepping stone to other exciting endeavours and the next stage of their careers.
Some may start another company, using the skills and contacts from their first business to build something new. Others will focus on investments, philanthropy or mentoring the next generation of entrepreneurs.
Selling your business is a great achievement, and you might come into a substantial sum of money. But after years of paying yourself through your company, it can require careful planning and investment to ensure you can achieve your goals and live the life you and your family want.
What happens when you sell a business?
After selling up, you may justifiably want to take some time out to pursue non-work ambitions, such as writing a novel, travelling the world or starting a new hobby.
But most exiting owners will also likely feel they still have much to offer society or the business world. There may still be things you want to achieve in the business you’re selling – if so, you could talk to the new owner about retaining your skills and knowledge for a transitional period or longer.
You might find staying on in the firm with a comfortable salary and benefits is a good way to carry on the work you enjoy, while improving your work-life balance and removing some of the stress and responsibility of owning it. After all, who knows your business better than you? If you do stay on, you need to understand that someone else is making the big calls – not you. You must be mentally prepared to relinquish that control and to trust and believe in the new owners’ plans. Perhaps you could take up a smaller role as, say, a non-executive director, mentor or ambassador for the company.
The alternative is to make a clean break to concentrate on another role, or perhaps start a consultancy business. Or you may want to do something completely different that makes use of your skills, such as writing a work-related book, becoming a lecturer or setting up a network to help younger entrepreneurs. Yet another option is to become an investor in young businesses, say as an angel investor – or just use your business savvy to manage your investment portfolio for optimal retirement income.
Whichever path you take, you’re likely to benefit hugely from the lessons you’ve learnt in your first business.
How is the sale of a small business taxed?
What you do after selling your business will also depend on the financial side of the deal – whether you sell the whole company or just a part; whether family members are involved; how much you receive, and whether that’s in the form of a lump sum or buy-out over several years.
You need to be aware of the tax implications of selling a business, as explained below, especially if you’re about to receive a substantial sum. A conversation with us will give you a better understanding of what you’re likely to encounter. The sooner you seek advice, the better, as some planning can take time to implement.
Business Asset Disposal Relief
If you make a gain from selling your business, you must pay Capital Gains Tax (CGT). But Business Asset Disposal Relief (BADR) - formerly known as Entrepreneurs’ Relief - allows the first £1 million of proceeds from the sale of a trading business to be taxed at 10% rather than the usual CGT rate of 20%. To qualify, you must have been a sole trader or business partner and owned the business for two years or more.
Business Relief
A trading business typically qualifies for 100% Business Relief from Inheritance Tax (IHT), so it can be passed on free from IHT on the death of the owner. But once you sell the business, you hold cash and lose this exemption. Subject to other allowances being available, IHT is charged at 40% on the portion of your estate above £325,000, so this can be an important consideration in the sale.
Seek advice
When selling a business and considering your next steps, talk to us. We can provide guidance on the tax considerations and offer advice on your future options.