QUESTION. My Husband and I are considering selling our trading company this Autumn. What should we be doing now to prepare the business for a sale?
ANSWER: If you are considering disposing off your business in the short/medium term then your Autumn timing is sensible.
You may be aware that the new Labour government will hold its first Budget at the end of October 2024.
The new chancellor has indicated that there will be tax increases, and given the government’s policy commitments in their pre-election manifesto, it is likely that both capital gains tax (CGT) and inheritance tax (IHT) will increase either through a change in the rates charged or the removal/reduction in allowances given or indeed both.
The disposal of the shares in your trading company is an event that is subject to CGT.
As the company is a trading company then providing you satisfy certain conditions, the first £1 million of gains per person is taxed at 10%.
Any remaining gains over £1m are taxed at 20% which is the flat rate of CGT in the UK (except for disposals of residential property).
It is unlikely that the 10% rate on the first £1m will be changed however the flat rate of 20% is highly likely to change, from April 6 2025.
By selling now therefore you are banking a lower rate of CGT.
If you anticipate sales proceeds more than £2m and you will not need access to these surplus proceeds, then you should consider setting up a family trust now and transferring part of your shareholding into the trust before the sale.
The trust will pay the same CGT as you will, but the net of tax proceeds of the trust’s shares will be outside your estate for IHT after seven years have passed.
The alternative is to just gift the surplus proceeds post sale however many parents are wary of gifting large amounts of cash to their children hence the popularity of a family trust.
The transfer of shares into trust is subject to CGT however the capital gain may be ‘held over’ by you and the trustees making a joint election to do so.
It is important that you realise that pre-sale the value of your business is exempt from IHT due to IHT business property relief, however post sale the net proceeds are fully within your estate and liable to IHT at 40% after the second death if you and your husband have ‘mirror wills’.
A future buyer will undertake due diligence to gain an understanding of your business along with the risks and rewards a purchase would offer them.
They will take a detailed look of your records, at least two years historical records as well as current records and forecasts for the future.
Getting into the habit of maintaining this detail to a high standard will mean that this process can be streamlined during negotiations.
You will also be required to give the purchaser warranties about the business and its tax affairs.
You should engage the services of a corporate Solicitor to guide you through this process.
The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
