Entrepreneurs tax Relief

Entrepreneurs tax Relief

Author
Discussion

insurance_jon

Original Poster:

4,054 posts

245 months

Monday 23rd November 2015
quotequote all
Just reading up on this and trying to get my head round it.

Say someone sold a business for £1m. This was 50% up front and 25% in each of years 2 & 3.

Do you have to pay the tax for the whole £1m in one go, or is it as you receive the money?

sumo69

2,164 posts

219 months

Monday 23rd November 2015
quotequote all
If the sums are fixed and contracted at the outset, the sale for CGT purposes is the 3 amounts combined and in the tax year that contracts are exchanged.

David


insurance_jon

Original Poster:

4,054 posts

245 months

Monday 23rd November 2015
quotequote all
What if they aren't fixed? Ie room for growth?

13m

26,271 posts

221 months

Monday 23rd November 2015
quotequote all

Isn't Osborne due to mess about with entrepreneurs relief this week?

Based upon recent form I think we can expect it not to become more generous.


AyBee

10,522 posts

201 months

Tuesday 24th November 2015
quotequote all
sumo69 said:
If the sums are fixed and contracted at the outset, the sale for CGT purposes is the 3 amounts combined and in the tax year that contracts are exchanged.

David
Is that really correct? What would happen if you only received 10% in year one and 30% in years 2, 3 and 4? You wouldn't have enough money to pay the CGT bill when it was contracted...

TNJ

408 posts

161 months

Tuesday 24th November 2015
quotequote all
That is exactly right - if the contract is not conditional then you have sold for the total price as far as HMRC are concerned - it does not matter that you have not received all the cash.

It is different if the eventual selling price is unknown (eg £100k now and an uncertain amount in the future) but that opens a whole different can of worms.

sumo69

2,164 posts

219 months

Tuesday 24th November 2015
quotequote all
AyBee said:
Is that really correct? What would happen if you only received 10% in year one and 30% in years 2, 3 and 4? You wouldn't have enough money to pay the CGT bill when it was contracted...
Yes - its down to the advisors to ensure the vendor has enough £££ to pay all the tax.

That's how I earn my fees!

David



L4CON

145 posts

104 months

Tuesday 24th November 2015
quotequote all
It is possible to apply to pay CGT in instlaments if you are receiving the consideration in instalments, depending on the circumstances.

cashmax

1,099 posts

239 months

Tuesday 24th November 2015
quotequote all
It is only correct in the OP's example. No one structures a deal where the tax would be due up front in the real world. This is almost always dealt with with some careful planning with share classes before any deal is done.

insurance_jon

Original Poster:

4,054 posts

245 months

Wednesday 25th November 2015
quotequote all
L4CON said:
It is possible to apply to pay CGT in instlaments if you are receiving the consideration in instalments, depending on the circumstances.
from what I can see the options are:

1. estimate the total cost for the deal and pay the tax up front so as to get it at 10%
2. Accept that later payments are at a higher rate

Eric Mc

121,788 posts

264 months

Wednesday 25th November 2015
quotequote all
There are rumours that Osborne may make some significant announcement about this tax relief in today's Autumn Statement.

insurance_jon

Original Poster:

4,054 posts

245 months

Wednesday 25th November 2015
quotequote all
Did he make any changes?

Eric Mc

121,788 posts

264 months

Wednesday 25th November 2015
quotequote all
insurance_jon said:
Did he make any changes?
Nothing I've spotted.

TNJ

408 posts

161 months

Thursday 26th November 2015
quotequote all
It looks like he is going to change the rules on members voluntary liquidations to stop you getting CGT treatment and claiming ER. HMRC are to issue a consultation document before the end of the year. This will make it very difficult to get ER unless you sell the company outright.

Eric Mc

121,788 posts

264 months

Thursday 26th November 2015
quotequote all
Well spotted. That is one exit strategy that looks like it might be coming to an end.

jamesh764

184 posts

141 months

Thursday 26th November 2015
quotequote all
insurance_jon said:
Just reading up on this and trying to get my head round it.

Say someone sold a business for £1m. This was 50% up front and 25% in each of years 2 & 3.

Do you have to pay the tax for the whole £1m in one go, or is it as you receive the money?
When my wife sold her company she had 50% of the agreed price at the time of sale, then another payment after a year conditional on the directors staying at the company for a year, and then a final payment after two years based on the company's profitability.

CGT was payable on the total at the time of sale, and then at the end of year 2 after the new owners messed up the business and reduced profitability to the extent that the final payment was lower than expected, she got a CGT refund.

NorthDave

2,355 posts

231 months

Thursday 26th November 2015
quotequote all
TNJ said:
It looks like he is going to change the rules on members voluntary liquidations to stop you getting CGT treatment and claiming ER. HMRC are to issue a consultation document before the end of the year. This will make it very difficult to get ER unless you sell the company outright.
Is there anything about voluntary liquidation?

L4CON

145 posts

104 months

Thursday 26th November 2015
quotequote all
insurance_jon said:
from what I can see the options are:

1. estimate the total cost for the deal and pay the tax up front so as to get it at 10%
2. Accept that later payments are at a higher rate
It depends what you're looking at really. If, as in the OPs example, the total amount is fixed and it is simply spread into instalments then its possible to apply to HMRC to pay the tax in instalments as well (conditions apply) and that shouldn't remove the availability of ER.

If you're looking at earn out deals etc then that's a different situation.

PugwasHDJ80

7,522 posts

220 months

Thursday 26th November 2015
quotequote all
You can structure it either way

The easiest way is to pay the full amount up front, but if the deferred us contingent then you won't get ETR on any amount over the nominal tax paid.

There are ways to defer the tax bill and pay the CGT at the applicable rate in the tax year you receive the payment, but it does mean that you risk changes to ETR coming into force.

PugwasHDJ80

7,522 posts

220 months

Thursday 26th November 2015
quotequote all
,
L4CON said:

If you're looking at earn out deals etc then that's a different situation.
Not if you structure the deal correctly.