What are Capital Gains Tax (CGT) rates?
Capital Gains Tax is applicable to the profit you are due to make when you are selling assets. Self-employed and sole traders, as well as people in business partnerships, pay Capital Gains Tax, which is at different rates to income tax.
Limited companies do not usually pay capital gains tax, but they must pay corporation tax against the gains.
There are many common assets that can be subject to Capital Gains Tax when they are disposed of, such as shares, bonds, and property. Selling a business, either as a sole trader, partnership or shares in a company, could be subject to CGT.
Do you pay tax when you sell a limited company?
If you operate your business through a Limited company, the type of tax due will depend on if the shares of the company are being sold or just the trade and assets. If you sell your shares, then this generally will be taxed as a capital gain on the shareholder. If the company sells the trade and assets then this will be a capital gain in the hands of the company and will be taxed at the corporation tax rate relevant at the time, and you will then be taxed personally on taking the money out of the company.
Calculate the gain
As with any other assets, the basics of working out the gains are the same for selling a business. The gain is calculated by taking the proceeds from the sale of the asset and deducting the cost of the initial purchase. You can also deduct any costs associated with the sale and purchase such as legal fees. These basic principles apply whether you are selling a business as a sole trader, a partnership, or holding shares in a limited company.
However, in many cases, identifying the different elements of this can be complex and very few sales are straightforward. Selling your business may include deferred consideration, contingent elements, or consideration in a form other than cash. If you sell or gift the business below its value, there may be implications for doing this too.
The presence of any tax reliefs could minimise your Capital Gains Tax liability, but add further complexities as they necessitate specific rules and additional criteria to fulfil.
How to Reduce Capital Gains Tax When Selling a Business
It is always important to plan any business sale in advance to ensure that you take advantage of the reliefs available and can structure the sale in the most tax-efficient way. In addition to this, you will also want to ensure that you are able to maximise its likely sale value. Preparing early and seeking professional advice in advance will be essential to achieve this.
If you are considering selling a personal asset or all or part of your business, GS Verde Group can advise you of the tax planning opportunities available to you before you make the disposal to help mitigate or reduce potential tax liabilities.
Before selling your business, professional advice will be essential to:
- Get your business ready for sale and minimise the tax due
- Identify successors within the business
- Help explore suitable transaction types
- Find and target possible buyers
- Accurately value your business
- Optimally plan the sale and maximise the sale price
- Plan your transition to your next venture
For more information and guidance, visit our 'Sell a business' page, or learn more about the various types of business sale, like Management Buyouts, Employee Ownership, Trade Sale, and Private Equity too.
Contact GS Verde's multidiscipline team to discuss your tax considerations, as well as the wider services needed to achieve a successful business sale from end to end.