The Government shocked business owners in its pre-budget report by almost doubling the amount of capital gains tax many business owners face when they sell up. Mark Bridge, partner at top twenty accountancy firm, Kingston Smith LLP in St Albans, highlights areas to consider if you are thinking of selling your business before 6 April 2008, when the new taxes set in. Mark Bridge explains, “The new tax implications will have a serious impact on entrepreneurs. They need to consider seriously whether they will be better to sell now or to accept the increase in tax, grow their business further and sell later. This will depend on a range of factors such as the period of ownership, the original cost of the asset or its value at 31st March 1982 (if applicable), the rate at which the owner pays tax, and the current value of the business. “The pre-budget announcement may be a catalyst for business owners to consider escalating their sales plans. Currently, business assets qualify for “taper relief” which allows business owners to pay 10% tax, even as a higher rate taxpayer, provided they have owned the asset for at least two years. As of 6th April 2008, the distinction between business and non business assets ceases and tax will be payable at 18% on the gain, irrespective of the rate at which the owners pays income tax.” For those who decide to sell up, there is plenty to do before now and April 2008 in order to prepare the business for sale. Kingston Smith’s top five pieces of advice regarding a business sale are: 1 Take advice early. There is no substitute for planning in advance. And planning is something you can’t do in arrears!2 Give very careful commercial consideration to what you really want to do – don’t let the tax tail wag the commercial dog. In general, a good time to sell is when the business profits are increasing and further investment could improve the overall returns.3. Groom your business for sale. Maximise the potential of your business by polishing the good bits and minimising any problems. 4. Think laterally when it comes to working out about why someone would buy your business. For example, would a buyer be after the freehold property for a development or the business itself? 5. Remember, transactions like this always take longer than anticipated so do not underestimate the time you will need.
Mark Bridge concludes, “Deciding to sell your business is a big step. After all, you will only sell it once! The removal of taper relief will no doubt trigger a flurry of activity amongst entrepreneurs looking to sell their companies in the near future. They will clearly be anxious to complete before 6 April 2008 or to seek professional advice on taking steps to protect their accumulated taper relief. Many entrepreneurs will be making some big decisions over the next few months.”
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