How much tax to pay when selling a business?
Discussion
Surely his accountant is advising him on the most tax efficient way of disposing of his business.
The answer is too difficult to reply to when there is so much that needs to be known about the company and how your brother wants to "sell up".
Is he selling the company as a going concern?
Is he selling the company separately from its assets
Is he selling the company's liabilities as part of the package?
How much of the sale price is going to consist of Goodwill?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were claimed?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were NOT claimed?
As you can see, no simple answer is possible.
The answer is too difficult to reply to when there is so much that needs to be known about the company and how your brother wants to "sell up".
Is he selling the company as a going concern?
Is he selling the company separately from its assets
Is he selling the company's liabilities as part of the package?
How much of the sale price is going to consist of Goodwill?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were claimed?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were NOT claimed?
As you can see, no simple answer is possible.
Eric Mc said:
Surely his accountant is advising him on the most tax efficient way of disposing of his business.
The answer is too difficult to reply to when there is so much that needs to be known about the company and how your brother wants to "sell up".
Is he selling the company as a going concern?
Is he selling the company separately from its assets
Is he selling the company's liabilities as part of the package?
How much of the sale price is going to consist of Goodwill?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were claimed?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were NOT claimed?
As you can see, no simple answer is possible.
The answer is too difficult to reply to when there is so much that needs to be known about the company and how your brother wants to "sell up".
Is he selling the company as a going concern?
Is he selling the company separately from its assets
Is he selling the company's liabilities as part of the package?
How much of the sale price is going to consist of Goodwill?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were claimed?
How much of the proceeds is going to consist of the sale of assets on which Capital Allowances were NOT claimed?
As you can see, no simple answer is possible.
Hi Eric, thanks for the quick reply.
From what I know:
Yes he would be selling the company as a going concern
Yes he is selling the company seperatly from its assets and the value is based on the goodwill value only. He intends to keep the premesis and rent them to the new owner along with the fixtures and fittigs.
No the company liabilities are not included in the sale price (I am assuming you mean outstanding account to be paid etc?)
Not to sure about the last 2 points at present but from what I can gather it is the goodwill, reputation, customer base and company name that are being sold for the asking price. The new owner would buy the existing stock and continue to run the company as it is now (it is a mail order company)
Therefore, what he is selling are the shares in the company - as they are the mechanism by which he currently owns the company.
The company shares cost him an amount when he bought them - that value is fixed based on the actual cash/consideration paid over when acquiring those shares when the company was set up.
When he sells those shares, the difference between what he paid for them and what he gets for them will be a Capital Gain and he will pay Capital Gains Tax on this gain, subject to the various reliefs available to hiom.
The first relief is Business Taper Relief. As he is selling a "business" he can avail of the higher rates of Taper Relief available when selling a business.
Secondly, he will be able to offset his Capital Gains annual allowance against the gain - currently £8,800. If the shares are jointly owned, then the other individual(s) who also own some shares will be able to make use of their Annual Allowance as well.
I am reluctant to say any more on this matter as, no doubt, he already has an accountant acting for him and I do have to take into account Professional Ethical considerations when diseminating "advice".
The company shares cost him an amount when he bought them - that value is fixed based on the actual cash/consideration paid over when acquiring those shares when the company was set up.
When he sells those shares, the difference between what he paid for them and what he gets for them will be a Capital Gain and he will pay Capital Gains Tax on this gain, subject to the various reliefs available to hiom.
The first relief is Business Taper Relief. As he is selling a "business" he can avail of the higher rates of Taper Relief available when selling a business.
Secondly, he will be able to offset his Capital Gains annual allowance against the gain - currently £8,800. If the shares are jointly owned, then the other individual(s) who also own some shares will be able to make use of their Annual Allowance as well.
I am reluctant to say any more on this matter as, no doubt, he already has an accountant acting for him and I do have to take into account Professional Ethical considerations when diseminating "advice".
As Eric says, get an accountant to advise the most Tax efficient structure. In loose terms he's probably eligible for 75% Tax relief on the capital gain. 75% of 40 = 30 so he could pay just 10% CGT, which is about 40k (ish). But - he needs tailored advice from someone with all the info.
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