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Selling a Business and Planning for the Future.

17 October 2017
4 Minute Read
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At Brown Shipley we have many clients who run their own businesses; they might be family businesses run for generations or entrepreneurs seizing on an untapped niche in the market. When the time comes, their decision to sell that business can be challenging and lengthy, often taking several years from start to finish.

There are important considerations, both pre and post-sale, to ensure the best outcome for individuals and their families and to prepare them for what comes next. Some of the key issues to consider are:

Pre-Sale

Is the business structured in the right way to ensure the optimal tax position on sale? Ownership of shares and, in particular, qualifying for Entrepreneurs Relief, can reduce the rate of capital gains tax from 20% to 10% on gains of up to £10 million per individual.

Ensure that you have maximised tax allowable pension contributions prior to the business sale. The pension pot will continue to grow, tax free, even after sale until such time as you require a pension income from it.

Even with careful planning, it is likely that there will be a tax liability on sale; how should this be provided for? A secure cash based investment with 100% capital protection and some upside potential may be the answer.

Is there a need to replace any benefits that you receive from the company e.g. does the company provide death-in-service life cover which it is appropriate to replace with personal life cover, either at the same or a reduced level? Family circumstances may well dictate the answer.

Inheritance tax (IHT) – the shares in the company may well be exempt from IHT under the Business Relief rules. Such exemption will not apply to cash received in exchange for the shares. The sale of the business may well, therefore, crystallise a potential IHT liability on death. Planning to mitigate this liability will be an important consideration.

Post-Sale

Deployment of the sale proceeds – this is perhaps the most important consideration and will be influenced by both personal and financial objectives. Are the sale proceeds to be invested in a further business, are they required to sustain an individual/family for the rest of their lives or perhaps a combination of these? Detailed consideration is advisable in considering the income and capital requirements of the individual/family.

Risk – it may well be that the proceeds are deployed into investment markets. Both attitude to risk and, importantly, capacity for loss are significant factors here. In circumstances where the sale proceeds are required to sustain an individual/family for the rest of their lives, then the individual(s) need to be comfortable with the level of risk and the impact on their lifestyle of any investment market corrections.

As important as the investments themselves is the structure through which they are held. Different tax outcomes apply to different ownership structures and the optimal tax position will deliver an enhanced overall return.

A cash flow modelling exercise, taking into account assets, liabilities, income and expenditure and future goals and objectives, is a crucial part of any business sale planning. Modelling a number of different scenarios, including capital expenditure, gifts to children and wider family and other extraordinary expenditure, will demonstrate the achievability of lifestyle objectives.

Wealth Planning Evolution and Implementations

So when it comes to selling your business, something you and potentially generations of your family have toiled away on successfully, make sure all your hard work pays off. Contact your usual Brown Shipley adviser to learn more about how we can support the process.