Business exit strategies

Time for your next adventure

There comes a time in every business’s life where the current owners/management team need to step down and make space for the next generation to come through. This may or may not involve a change of ownership – it might be a sale to an unconnected 3rd party, a trade sale or to private equity, or some form of Management Buy Out. Also, now popular are sales to an Employee Ownership Trust, which are a way of passing indirect ownership to the workforce, which benefit from a zero rate of capital gains tax for the vendor.

As with so many major decisions in life, the time to prepare for business succession is well before the issue arises. You may need to consider optimal asset ownership where you have group structures, or consider the consequences of the shared ownership profile should a sale occur? Also, should be given to putting some form of Management Incentive share or share option plan in place to start bringing through the next level to your senior management?

When the time comes to sell, vendors need a clear understanding of the tax implications of their sale, based on whatever structure is proposed. There are various tax reliefs that might be available, business asset disposal relief, substantial shareholders exemption etc, and the structure of the sale can mean these reliefs could be lost without the appropriate advice.

And finally, post-sale, is there planning that could reduce the tax burden in the year of sale? Also, it is worth bearing in mind that suddenly an IHT friendly asset (being shares in a trading company) loses all tax relief on death, and the potential for IHT increases substantially, so what steps should be considered pre or post sale to mitigate this?

There is a lot to think about. What we can say with certainty is that good planning, well in advance, makes a difference and… will pay dividends!