Remarkably, it is still possible to sell your business and pay zero taxation legitimately. How is this possible? Well, says Wealth & Tax Management managing director Tony Byrne, there is a catch.
Under current tax legislation, a limited company that owns more than 10% of the shares in a trading company for more than a year qualifies for the substantial shareholding exemption.
This means that if the holding company sells those shares it does not have to pay any Corporation Tax on the sale.
Therefore it is possible to sell your trading company and pay zero taxation.
The proceeds from selling your company are now in your holding company, and you will face tax if withdrawing the funds personally. Usually, that means dividend tax on receiving the proceeds from the sale, which rather defeats the purpose!
However, it all depends on what you plan to do with the proceeds of the sale. If you simply plan to pay yourself dividends and spend the money personally then there is no advantage to you tax-wise.
However, if you sell the business and re-invest the proceeds in other businesses, or buy to let properties, or stocks and shares, or a combination of these purposes then there is no need to withdraw the proceeds personally and you pay zero taxation on the sale of your trading business!
So, what if you don’t know yet what you want to do when you come to sell the trading company in the future? In this case bear in mind that you always have the option of liquidating the holding company to access the proceeds as capital, which then puts you in the same position as if you held the trading company shares personally, and you’ll personally pay Capital Gains Tax, with the same CGT reliefs.
Moving your shares into a holding company needs careful consideration and there is a process to follow to do so without triggering Capital Gains Tax or stamp duty on the current value of the shares. This is called share for share exchange so you will need advice from a tax specialist accountant to ensure it is done properly.
If you are interested in discussing ways to save your business taxation, why not benefit from a one-hour Discovery Meeting either at our offices or by a video conference call at our expense worth £270 to each of the first three readers who contact us before October 31 2021? You know it makes sense. We offer a great cup of coffee too but unfortunately not a virtual one!
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The contents of this article are for information purposes only and do not constitute individual advice. You should always take tax and legal advice from a professional.