sale of business

Yoshii

my sister has agreed to sell her business and property and will make about £35 k profit . what steps can she take to minimise tax bill.
is the tax 30% after first £8k or what.
can she reinvest in property so she does not have to pay as much tax or do they just tax you anyway.

also can she write off any set up costs ie equipment , stock against the prfit figure.
any help appreciated
thanks

yoshii

Yoshii

oops forgot to add that business is in husbands name only.could they put my sisters name on the deeds.
thanks

yoshii

sneekymum

Too late to put sister's name on deeds if the gain has already been made (by the passage of time...).

No, reinvesting in property doesn't help - the tax is due anyway. Its taxed at 20% or 40% depending on your income tax band - the tax is paid on the amount over the £8,200 annual allowance. If he is a higher tax payer it may be worth making a pension contribution to reduce his income to the 22% tax band so that Capital Gains Tax is paid at 20% and not 40%.

I don't know about writing off set up costs but I bet these can be deducted. You can certainly deduct sale costs - solicitors fees, advertising etc. Then don't forget taper relief - which means that you pay less if you hold an asset a number of years.

WHA

It is a matter of fact as to who owns the business. The deeds of property dictate the ownership of the property unless there is a legal document confirming otherwise (i.e. deed of trust etc). The ownership of the business itself will have already been notified to the Inland Revenue when submitting trading accounts and tax returns. If the business has already been sold, or is close to completion, it is too late to change the ownership - that should have been done either when the business started, or at least at a time before the sale was being actively contemplated - otherwise the tax authorities may disallow the change on the grounds that its sole purpose was tax avoidance!

Business taper relief will reduce the taxable gain by upto 75%, so there may be no capital gains tax at all as the eventual taxable gain may be covered by the annual exemption. Taper relief depends on the lenght of time the business was trading.

When you say "profit on sale of business", you need to be more specific. In particular, the sale proceeds should be broken down into land/buildings, equipment, stocks, and goodwill, and "profits" calculated on each category. Different rules apply as to whether capital gains tax or income tax applies, and to the reliefs etc available. The solicitors handling the sale should include a proper breakdown in the contract.

The proceeds from the sale of equipment and stock are most likely to be trading profits of the business and taxed for income tax (and NIC) like the normal trading activities.

Proceeds from goodwill and land/buildings need to be reduced by the selling costs (solicitor and agents etc), and the original purchase price and purchase costs. From the resultant "profits", you deduct the business asset taper relief and then personal annual CGT exemption, to leave a (probably) much reduced gain.

If a significant taxable gain remains, it may be possible to defer the tax by claiming rollover relief -i.e. reinvesting the proceeds of one business asset into another. So if s/he used the proceeds to buy another business (or asset used for a business), it is possible that the gain can be rolled-over and tax deferred.

And another thing, was the business a sole trader, or a limited company. If a limited company, some of the above is irrelevant.

I would strongly recommend a brief consultation with an accountant as these things are easy to get wrong.