Selling my Business - Tax implications

happywarmgun

I started my business four years ago. Three employees.

It's a ltd company. I own 100%.

I have an exclusivity deal with an Italian company on their product. Their CEO has just rung me up and offered to buy me out 100% for 500k. He would then make my company his UK arm, make me MD or CEO or whatever, give me a salary, and give me an equity stake in his company.

It isn't altogether an unattractive offer. However, I have no idea what the tax implications of the sale could be. Is there some kind of relief because I founded the company? Is it a capital gain? Basically, assuming all other things are very regular and I've never done anything clever for tax planning what would I have to give to HMRC if I sold for 500k, and is there anything smart I should be doing to ensure that I wouldn't be handing over more than I need to due to ignorance?

(obviously, I'll be speaking to a proper accountant, but would like to sound half informed before I have that conversation so welcome any input from anyone who deals with this kind of thing or has the battle scars to share)

zygurat789

happywarmgun wrote: »

I started my business four years ago. Three employees.

It's a ltd company. I own 100%.

I have an exclusivity deal with an Italian company on their product. Their CEO has just rung me up and offered to buy me out 100% for 500k. He would then make my company his UK arm, make me MD or CEO or whatever, give me a salary, and give me an equity stake in his company.

It isn't altogether an unattractive offer. However, I have no idea what the tax implications of the sale could be. Is there some kind of relief because I founded the company? Is it a capital gain? Basically, assuming all other things are very regular and I've never done anything clever for tax planning what would I have to give to HMRC if I sold for 500k, and is there anything smart I should be doing to ensure that I wouldn't be handing over more than I need to due to ignorance?

(obviously, I'll be speaking to a proper accountant, but would like to sound half informed before I have that conversation so welcome any input from anyone who deals with this kind of thing or has the battle scars to share)

Is this going to be £500,000 (or €500,000) in cash or is it the value of the whole package you mention? Oh yes, nice line in understatement.
This is the quintessential capital gain. I think you are lookin at Entrepreneur's relief which means that you pay CGT at 10% and is good for up to £10m.

WHA

The big question is whether he wants to buy your shares in your limited company = capital gains tax on you personally.

Or

Whether he wants to buy the business from your limited company, leaving you with a limited company that has a big cash balance = company corporation tax on sale of assets/goodwill AND personal capital gains tax on you if/when you liquidate your company to get the cash out.

The former is usually a lot better for you, but more risky for the buyer.

Something to check and maybe negotiate.

happywarmgun

zygurat789 wrote: »

Is this going to be £500,000 (or €500,000) in cash or is it the value of the whole package you mention? Oh yes, nice line in understatement.
This is the quintessential capital gain. I think you are lookin at Entrepreneur's relief which means that you pay CGT at 10% and is good for up to £10m.

It is GBP - basically he is offering 2x annual revenue for 100% of my business - revenue this year is 250k ish.

The equity stake in his business is an addition.

The reason for the understatement is that if it was taxed at 40% or something monstrous, then the idea of going back to work for anyone else and letting go of a business I built from scratch, even on a decent salary, after four years of being king of my life for say a quick 300k in the bank, really is on the cusp (just the cusp!) of not being as attractive as it would have sounded four years ago!

Do I have to do anything to ensure I am entitled to Entrepreneur's relief? I have one employee who has been with me throughout and I would probably want to give her a chunk of change (without her hard graft I wouldn't have the business I do, and I'd feel a fraud not to recognise that if I was grabbing themoney) - what would the most tax efficient way of making sure she could keep that maximum of what I would give her in the sale?

(I'm trying not to get excited - but typing this, I'm struggling)

happywarmgun

WHA wrote: »

The big question is whether he wants to buy your shares in your limited company = capital gains tax on you personally.

Or

Whether he wants to buy the business from your limited company, leaving you with a limited company that has a big cash balance = company corporation tax on sale of assets/goodwill AND personal capital gains tax on you if/when you liquidate your company to get the cash out.

The former is usually a lot better for you, but more risky for the buyer.

Something to check and maybe negotiate.

It is the former.

zygurat789

happywarmgun wrote: »

It is GBP - basically he is offering 2x annual revenue for 100% of my business - revenue this year is 250k ish.

The equity stake in his business is an addition.

The reason for the understatement is that if it was taxed at 40% or something monstrous, then the idea of going back to work for anyone else and letting go of a business I built from scratch, even on a decent salary, after four years of being king of my life for say a quick 300k in the bank, really is on the cusp (just the cusp!) of not being as attractive as it would have sounded four years ago!

Do I have to do anything to ensure I am entitled to Entrepreneur's relief? I have one employee who has been with me throughout and I would probably want to give her a chunk of change (without her hard graft I wouldn't have the business I do, and I'd feel a fraud not to recognise that if I was grabbing themoney) - what would the most tax efficient way of making sure she could keep that maximum of what I would give her in the sale?

(I'm trying not to get excited - but typing this, I'm struggling)

Basically your previous understatement just keeps getting underer.
Never get excited until you have the money.
How to be an entrepreneur - start a company from scratch and sell it 4 years later for £500k.

It would have been a little better if you and a spouce had owned the company 50/50.
I don't know anything about your accountant but for this you need a little bit more than the local ones and consider a solicitor too.

pjclar02

Hello there


You would be best advised to take both tax and legal advice. From a tax perspective, from the information provided it is likely that you will qualify for Entrepreneur's Relief but the detail will be key to this (such as what activity the company undertakes).


It may be possible to defer some of the capital gain arising through various mechanisms.


From a legal point of view, it would be good to have a review of the share sale agreement, but also on employment law matters. If the acquirer is purchasing the limited company, they will take over the employees also so your colleague will retain a job (at least in the first instance).