In the UK, the highest capital gains tax rate on the sale of shares in a business is 20%. However, this rate can be reduced to just 10% on the first £1 million of taxable gains if the sale qualifies for Business Asset Disposal Relief (BADR).
By Chris Davies
In contrast, marginal income tax rates, including student loan repayments, can exceed 75%. This stark difference raises questions about potential changes under a possible Labour Government later this year. Traditionally seen as champions of the working classes, Labour may seek to address this imbalance by either increasing the general rate of capital gains tax or reducing the availability of BADR.
This potential shift introduces uncertainty and the risk of higher tax liabilities for business owners in the future. Therefore, business owners considering retirement might want to lock in current tax rates by advancing their plans. Options include selling to a third party, transferring ownership to an employee ownership trust, or winding up the company through a Members Voluntary Liquidation (MVL), which requires the services of an Insolvency Practitioner.
Although the date of the next election is uncertain, changes are likely on the horizon. Seeking advice promptly is crucial. A good starting point is a conversation with your accountant to discuss your options and the implications of potential tax changes. If necessary, your accountant can recommend a firm of Insolvency Practitioners.
Do not underestimate the time required to sell or liquidate a business. Savvy purchasers will want to perform their due diligence, which can be time-consuming. The legal process tends to be slow, and the MVL route involves statutory notice periods.
While we cannot predict the future with certainty, scenario planning can help gauge potential outcomes and inform your decisions.
Do get in touch for advice on selling your business while minimising your tax bill.
