Does your business qualify for “Business Sale Relief”?

When you sell a business, your proceeds of sale are likely to be subject to Capital Gains Tax (CGT). However, if your business qualifies for “Business Sale Relief, the reduced rate of 10% will apply on all gains on qualifying assets up to a lifetime limit of £10M.

  • So, how do you qualify? Well, in broad terms you will qualify should you dispose of any of the following;
  • You sell all or part of your business as a sole trader, business partner or company director.
  • You sell assets that you lent to your business or personal company.
  • You sell your shares in a company where you have a minimum stake of 5% in a company with voting rights (known as a “personal company”).

Do not be alarmed if you are still unsure of your situation in this regard, as your accountant should be in a good position to advise you.

What are your obligations to your employees once your business has been sold?

When ownership of your business changes, your employees are usually protected under a piece of employment legislation called “Transfer of Undertakings (Protection of Employment Regulations) more commonly known as “TUPE” for short. TUPE would usually apply when either a business transfers or the service provision changes. So under TUPE the following would apply:-

  • All employees’ jobs usually transfer over to the new company unless they are made redundant prior, or the business is insolvent.
  • Employment terms and conditions are transferred as they exist.
  • Continuity of employment is maintained also.

Again, should you have any doubt at all, seek advice from an employment specialist in order to make sure that you do not inadvertently break the law.

Understand what you are selling from the outset i.e. is it your assets, your company or both?

Most estate agents prefer to sell their company and its shares, usually with the intention of limiting both their future liability and tax obligations. However, buyers and their legal advisors are likely to be much more cautious in this instance, as they are effectively buying the history of the sellers company and the potential “exposure” that accompanies it. So, it is important that you consider the following if you wish to limit both the transaction length and minimize your legal fees;

  • Once the terms of sale have been agreed, your business will be subject to “due diligence” by the buyer and legal advisors, so look to tidy up any obvious potential issues/difficulties pre sale. If this is not possible, disclose your concerns early on in negotiations, as this way you stand a better chance of keeping the buyers trust and avoiding a collapse of the greed terms at some later stage.
  • Please note that buyers do not usually take on the historical business debts of the businesses they buy – so best be open in this regard, so that an amicable arrangement can be reached that is acceptable to all parties.
  • In general terms, the tidier your records – the faster the sale will proceed. So it is important that you (as the seller) prepare your business in advance for the scrutiny it will face once the sale process gets under way. No buyer likes unwelcome surprises, however unintended!
  • Think carefully about what you are trying to achieve by selling your business, and NEVER be afraid to take advice at an early stage from your accountant, solicitor and/or broker. I would add that it is important to assemble a team around you in whom you have complete confidence, and they will no doubt prove their worth in moments of potential stress or difficulty.

I have written this short information piece, because on occasion it has been our experience that clients can drift naively into selling their business and find themselves compromised (either practically or financially) at some later date.

Lastly, I would add that clients generally sell a business only once in their lives, so it makes sense to plan for a successful exit. Of course, it can be an emotional experience, and on occasion even a little stressful, but once the process is over, it can also be both rewarding and life affirming.

The author of this article is Peter Nicholls CEO of Ideology Consulting. For more information about selling your estate agency, go to www.ideologyconsulting.co.uk