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What Percentage of Tax Do You Pay When Selling a Business?
Selling your business is an exciting step towards your future, but before you pop the champagne, there are some key details to iron out. Taxes are one of the biggest.
The amount of tax you owe can make a big difference in your final payout. The exact rate depends on a couple of factors, mainly how your business is set up and your current tax bracket.
Lester Brunt’s financial advisers have years of experience guiding business owners through the sale process. Below, we’ll break down the tax implications based on your specific situation and explain what you should do to prepare for the sale.
How Much Tax Do Limited Companies and Sole Traders Pay?
In the UK, the tax you pay on the sale of your business largely depends on how your business is structured. Here’s a breakdown:
Limited Companies
- Capital Gains Tax (CGT): This tax applies to any personal gains you make from selling company assets. The standard CGT rate is 20% for higher and additional rate taxpayers, and 10% for basic rate taxpayers. There’s also an annual tax-free allowance (currently £3,000) that applies to CGT.
- Corporation Tax: When a limited company sells its assets, including shares, any resulting profit might be subject to Corporation Tax. The current rate for the 2023-24 tax year is 19% for profits under £50,000, but it climbs to 25% for profits exceeding £250,000. There’s a marginal relief system in place for profits between these brackets.
Sole Traders and Partnerships
For sole traders and partnerships, CGT is the primary tax concern. You’ll be liable for CGT on the profit earned from selling your business, with the rates the same as they are for limited companies.
What About Business Asset Disposal Relief (BADR)?
The Business Asset Disposal Relief (BADR), previously known as Entrepreneur’s Relief, can substantially reduce your CGT bill. If you qualify, you’ll only pay 10% CGT on the first £1 million of gains from selling your business. This relief can make a huge difference in the final amount you take home after the sale.
To be eligible for BADR, you typically need to have been a sole trader or partner for at least two years before the sale and hold a minimum stake in the business. There are other specific conditions that apply, so it’s a good idea to consult with a financial adviser to determine if you qualify.
Why You Should Seek Professional Tax Advice
Taxes can be maze, with plenty of room for expensive mistakes. That’s why talking to a qualified financial expert is your best option. They can be your guide, helping you navigate your business exit* while making sure you get the most out of reliefs like BADR, have a smooth sale tax-wise, and potentially uncover other tax-saving opportunities.
Lester Brunt: Your Trusted Financial Adviser for Business Sales
Thinking of selling your business? Don’t leave money on the table. Lester Brunt have over 25 years of experience helping business owners achieve their ideal sale, and we have the expertise to do the same for you.
Our industry expertise and successful track record mean we can find every chance to help maximise your sale price. From small, local businesses to large limited companies, we work with you one-on-one to craft a personalised plan for reaching your goals. We can also help with other aspects of exit planning.
If you’re ready to take the next step, book a no obligation consultation online or call us on 01202 695 801 today.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
*Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.
Written By Ellis Mallett
Chartered Financial Adviser
Lester Brunt Wealth Management
Lester Brunt Wealth Management is a trading name of Lester Brunt Wealth Management Ltd
SJP Approved 30/07/2024