Are you planning to sell your business?

If you have spent years building up your business and are thinking about when to sell it, you are likely to have many questions. We are asked a number of things by clients when they sell their business and in many cases we find these 3 questions come up, they are: 

1. How much do you need for a good retirement?  
2. How can I reduce my tax bill?  
3. What should I do with the sale proceeds?  

We look at each of these in more detail and share the answers we think will help you most.  

How much do I need for a good retirement?

This is the first question you should ask yourself when thinking about selling your business.

After all, if you go into the process armed with the knowledge that you need, for example, at least £2 million net to retire on, but you are only offered £1.5 million, you have further questions to ask yourself. Should you carry on working? Might you be able to renegotiate a higher price? Are you prepared to make lifestyle changes to reduce expenditure in retirement?  

If the answers are all “no”, then the sale is not necessarily in your best interests, as you have identified a shortfall but have no means to make up the difference.

Part of our job at TPO is to help you identify the sum you need in order to achieve your long term financial security and meet your lifestyle aspiration, and for that we carry out cash flow and scenario modelling.  

The aim is to finalise a realistic scenario that will act as your benchmark going forward and give you clarity about what the business sale means in the context of your financial planning and what the future might hold. 

This allows us to work out what “core fund” you need to ring-fence that could provide you with financial security given a number of factors, including your expenditure requirements and your willingness to invest for your future.

How can I reduce my tax bill?

Business Asset Disposal Relief (formerly known as ‘Entrepreneur’s Relief’) could be one of the most impactful tools available to you for reducing your tax bill when selling a business. Business Asset Disposal Relief means that instead of paying ordinary capital gains tax rates, you’ll be capped at 10% on all gains on ‘qualifying assets’. This is up to your ‘Lifetime Limit, currently £1 million. In 2020, the Business Asset Disposal Relief’s associated ’Lifetime Limit’ reduced considerably from £10 million, down to £1 million. 

In her Autumn Budget on 30 October 2024, the Chancellor confirmed that the applicable rate of tax on gains in excess of the £1 million lifetime limit will increase from 10% to 14% in April 2025 and again to 18% from April 2026.

If you do not already qualify for this relief, then it may be prudent to take steps in that direction before selling.

For the very risk-tolerant entrepreneur, it is possible to roll some of the gains into an Enterprise Investment Scheme, which will defer the capital gains tax payment associated with those specific gains for several years while also maintaining the inheritance tax exemption under Business Relief and also qualifying for 30% income tax relief as well.

The downside is that such investments are genuinely high risk, and the amount of capital which will be returned is therefore not guaranteed at all. This is not a solution that is suitable for everyone and careful consideration would need to be given to investing in such an arrangement¹.

What should I do with the proceeds?

In the short-term, it is often best to take a breather and not to make any immediate decisions, in which case you may be concerned over the safety of your cash left with UK banks, especially as only the first £85,000 per person per banking licence is subject to statutory protection. This can be higher if the temporary high balance rules apply. You can learn more about this in our article about the FSCS scheme. 

One option you should consider is using National Savings and Investments (NS&I), as their accounts are all 100% underwritten by HM Treasury.

You can bank up to £4.17 million per person, fully protected, using the following accounts:

• Direct ISA (£20,000)
• Premium Bonds (£50,000)
• Green Savings Bonds (£100,000)
• Income Bonds (£1 million)
• Direct Saver (£2 million)
• Investment Account (£1 million) 

Most of these are instantly-accessible and fully protected, meaning you have time to think about the ideal investment strategy for your hard-earned cash².

We can help you visualise what the future could look like after selling your business.

We build a plan to ensure you stay on track to achieve your future lifestyle aspiration, maximise tax efficiency where possible and structure your affairs so that your finances are optimally positioned to help you meet your goals whilst taking the minimum amount of risk necessary.  

Being independent and financial planning led allows us to place the business sale into the context of your broader financial planning objectives.

We are responsible for advising upon over £2billion of client assets and can help you make sure that your investments start and stay on track.

For more information get in touch and speak to a financial adviser who can help you meet your financial planning objectives. 

The value of investments can fall as well as rise. You may not get back what you invest.

References 

1. tax treatment depends on your individual circumstances and may be subject to change in the future. 
2. NS&I data correct at February 2024 and subject to change. Products mentioned can be withdrawn at any time. see NS&I website for more details.

Please Note: The FCA does not regulate tax advice.