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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15836
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am thinking of selling by busiiness (sole trader) tax wise

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I am thinking of selling by busiiness (sole trader) tax wise would it be better to incorporate then sell the shares
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Are you thinking of incorporating and immediately selling the shares in the new company before it has traded?
Customer: replied 1 year ago.
Yes
Expert:  TonyTax replied 1 year ago.
Thanks.
What type of business do you run and what assets does the business have,ie premises, goodwill etc?
Customer: replied 1 year ago.
Book-keeping, wages etc. basically selling goodwill clint list
Expert:  TonyTax replied 1 year ago.
Thanks.
Leave this with me while I draft my answer.
Customer: replied 1 year ago.
How long will you be or will you email me the answer
Expert:  TonyTax replied 1 year ago.
You will get a message when my answer is ready. I like to give a full answer so it can take time but I should be done in 15 or 20 minutes.
Customer: replied 1 year ago.
Do I need to stay logged on or will the answer be sent by email as I need to sign off from my ipad
Expert:  TonyTax replied 1 year ago.
You don't need to stay logged on. As I said you will get an email from just answer to tell you my answer is available.
Expert:  TonyTax replied 1 year ago.
Hi again.
You should refer to HS275 on entrepreneurs' relief here as part of this answer:
https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2015
If you sell the goodwill as a sole trader, then you may qualify for entrepreneurs' relief which would restrict your Capital Gains Tax charge to 10% as opposed to one of or a combination of the regular rates of 18% and 28%.
If you incorporate and claim incorporation relief which is the default position, the gain would be held over by reducing the cost of the shares by the gain so that the CGT liability is incurred on the disposal of the shares. If you sold the shares you would potentially qualify for entrepreneur's relief but you would need to be trading as a company for at least a year.
I cannot see any point in incorporating because of the one year trading period and you may not find a buyer who wants to buy shares in a company when they could buy the goodwill from the company which would mean that the company would pay corporation tax on the gain at 20%, leaving you with the problem of extracting the cash from the company tax efficiently.
A buyer would probably prefer to buy the goodwill from you as a sole trader, not least because the client base may wonder what is going on if a more complicated set of changes occurred. Clients don't like change and will find any excuse to move on. Given the recent changes and restrictions on claiming ER around the disposal of goodwill to a company you are associated with, the cleaner and more straightforward the change of ownership, the better in my opinion.
I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
the buyer wants to pay for the goodwill over three years how would this effect the sale of the goodwill for capital gains and entrepreneur's relief.
Expert:  TonyTax replied 1 year ago.
There is no reason why you should not qualify for ER even if the sale price is paid in instalments.
If the price is set in stone at the outset, then the disposal will be deemed to have taken place when the contracts are signed for the sale. The CGT will be payable for one tax year but you can apply to pay it in instalments as you receive each payment. Take a look here for more information:
http://www.hmrc.gov.uk/manuals/cgmanual/cg14910.htm
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15836
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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